The paper gold chart looks to be resolving itself soon with the intermediate trend at stake. Price is flirting with the lower trend boundary and could have traced out a potential right shoulder 3 days ago. If the head and shoulder pattern is confirmed by a break below the blue neckline (see chart below) a projection of a sub – 1500 price is suggested. This would be excellent news for me as a Freegolder because I am ready to buy another 10 ounces of physical! Can you say bargain? Paper traders on the other hand have to go short to make a profit. There is a good bit of risk in paper it seems.
The short term up trend remains intact as long the recent 1670 swing low is not broken to the downside. Support and resistance is coming fro a zone comprising all 3 of the major moving averages between 1733 and 1711. A break lower today suggests a move to at least major chart support around 1680, if not all the way to the Bollinger band currently at 1668.
Here is the potential head and shoulders reversal pattern sketched out. Paper gold has been acting as a risk asset lately, which really shouldn’t surprise anyone. It is risky! Paper gold can never reflect physical gold’s true value where physical gold can and will. A panic reflex in Europe could start another stampede into the dollar and out of paper gold. the projection for the confirmed reversal would be the height of the pattern from the neckline to the head, then projected downward from the neckline. In this case somewhere just below $1500. There are a couple flies in the ointment to this thesis; firstly, RSI is higher for the right shoulder than the left. For the textbook H & S you usually see lower technicals and volume for the formation of the right shoulder as compared to the left. Also in this case volume is identical for the right and left shoulders. Finally, a move all the way down to 1500 would take price to over a 100 below the 200 day moving average, something that would be very rare indeed. IMO, a more likely scenario would be a 3rd visit to the 1600 area and a kiss of the 200 day moving average. I will buy my next 10 Buffaloes on a break below 1667.
This next chart shows how rare a move to the 200 day moving average would be, let alone a significant move below that level. Notice since 1200 there has only been one occasion where price has met up with the 200 day moving average (red). On this longer term chart price is smack in the middle of the trend channel. Notice the bottom of the trend channel and the 200 day moving average are co-located near 1600. I think this is the worse case scenario with a breakdown below 1667.
Traders beware. Better glue yourself to the trading screens. Freegolders are running out of shopping days before Christmas, better get busy hitting the malls.