Dan Norcini: Gold Chart Comments

Gold Chart comments

by Trader Dan

The Daily Chart is pretty clear as to the larger resistance and support levels. Those remain the same as they had been previous to the strong upside moves on Monday and Tuesday of this week. The sell off was contained on the downside by the same level support that has held for over a month now. Value buyers continue to surface near and just below the $1700 level. Reports of very strong increases in physical offtake are surfacing out of Asia on such dips in price.

This buying is not of the nature that it chases prices higher; that requires the momentum crowd (hedge funds in particular) many of which were run out of their long positions on Wednesday’s rout. For that crowd to come back in, gold will need a return TO AND THROUGH the $1750 level.

Last week I posted a weekly chart detailing the BULLISH FLAG OR PENNANT FORMATION which had developed. I also gave a price projection based on that pattern noting that this pennant would remain in force unless we got a move in the price that TOOK US BELOW THE BOTTOM OF THE FLAG. That did occur with this week’s outside reversal pattern so the price projection from that flag is no longer immediately in effect.

What we have now on the weekly chart is a powerful upside formation clashing with a powerful downside formation. The fact that gold did spike through the bottom of that flag only to recover above $1700 is encouraging. It looks to me like we have a setup that is more conducive to a consolidation type trade (sideways movement) rather than the setup for a sustained downdraft. The longer gold holds above $1680-$1690, the better the odds become of this becoming a new base from which the next leg higher will commence.

Note that the moving averages I like to use to get a sense of the prevailing trend (10, 20, 40 and 50 week) are all moving higher indicating that the weekly trend still remains up.

Price did come down and touch both the 10 week and the 20 week moving averages and bounced from there. The 50 week moving average has seen only one close below it in the time frame shown but immediately recovered the following week. The 40 week moving average (dotted line) has also served as a support level on several occasions. It was not reached in this week’s sell off. The only reason I would become the least bit concerned about a longer correction being in store for gold were it to get TWO CONSECUTIVE WEEKLY CLOSES BELOW THE 50 WEEK MOVING AVERAGE.

In short, the longer term trend is up.

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