Gold – 17 May

The paper gold gold chart is telling me we are likely looking at capitulation.  Price has been below the Bollinger band for 7 consecutive days, a highly rare event. RSI is near 20, and stochastic is buried at 4.86. I can’t imagine there is much more down side energy left. Now there is a 30 plus dollar rally happening that is not reflected on this chart. That would be the mid 1570s. Resistance is way above at 1620, the 18 day moving average. Slightly above there is chart resistance from previous support at the 1625 level. The Bollinger band envelope is as wide as it gets and suggests a break in volatility is coming or is at hand. At the least I look for a rally back into the Bollinger bands. !600 must give way to the upside before the current downtrend is nullified. There are some interesting things to see on the longer term charts.

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Looks like a double bottom at 1525 to me. That projects to 2060 if it is a valid reversal pattern. With the wider view we can see the degree to which RSI and stochastic is indicating over-sold is over-sold. If this is a valid reversal today, there is divergence in MACD where the previous visit to 1525 yielded a lower reading than the current test. This would bode well for a continued rally back to resistance. Stochastic was hooking yesterday and today it has definitely put in a bullish cross. When stochastic crosses above the 20 level the price target becomes the nearest moving average, in this case the 18 day at 1620.

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The weekly chart shows the degree to which the technical are at an over-sold extreme. RSI is as low as it has been since 2008. Stochastic is as low as it has been as well. Price is finding support exactly where you would expect, the 100 week moving average. We see a triple bottom on this chart and a descending triangle formation. The triangle is a continuation pattern where the previous trend is likely to continue following a breakout. The descending triangle is generally bearish and the projection is the height of the triangle downward from the breakout point, in this case the base at 1525. That would project a price of 1125! I can only hope that is the case and physical gold can be had at that price. I personally don’t think we are headed that low unless the whole paper gold market collapses and Freegold is upon us. I have a hard time seeing anything lower than the Fibonacci 38.2% retrace level at 1457.

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Here’s the big picture chart:

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