Taking A Look At Gold

Here’s the daily chart of gold:

Gold Daily

Gold Daily

Looking at the ADX indicator, you can see that the negative DI line is now firmly above the +ve DI line, clearly showing that bears are in control.

The MACD indicator is also negative, having crossed over its signal line just before the end of January. Both lines are pointing downward, a bearish sign. The histogram is also getting larger, showing the distance between the MACD line and its signal line is getting larger and thus bearish momentum is getting greater.

On the bullish side, however, a clearly defined reverse head and shoulder pattern has been formed. The rally from the head shows heavier volume. There was also a burst of trading activity as the neckline was broken. This is exactly what you want to see in a reverse head and shoulder pattern.

And now, it looks like there is going to be return move back to the neck line. Returning to the neck line is a very common move to see at market bottoms. If this pattern does work out, we should see gold bounce off the neck line and move upward from there to at least the $1320 level.

Weekly Gold Chart

On Friday, gold closed below the $1240 support/resistance line. The MACD indicator still looks positive as neither the MACD line or its signal line are pointing downwards.

The ADX indicator shows that the Bears have just gained slight control over the market. You can see that the –DI line has just crossed the +DI line, showing the bears are just, but only just, in control.

 Gold Stocks Forecasting The Way?

As neither the daily or the weekly chart provide a clear forecast, let’s take a look the gold stocks and see if we can get an indication as to which way gold is likely to go. As you know, the shares often lead the metal.

Looking at the Market Vectors Junior Gold Miners daily chart:

 

GDXJ

GDXJ

GDXJ has been trending downwards for the last two weeks. However, there is a strong band of support at $26 which also coincides with the 50 day moving average. You can see both MACD lines are pointing down which is bearish. The ADX indicator shows neither the bulls or the bears having significant authority, though the bears gained slight control over the market on Friday.

 

Conclusions

I would like to see a clearer picture before making any commitments. Gold’s reverse head and shoulder’s pattern is interesting and points to an upward move, but most of the indicators are bearish, so I’m still sitting this one out until the picture becomes a lot clearer.

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