Gold…Daily, Weekly and Monthly Analysis

Peter’s Commentary:

Here’s the daily chart of gold:

A reverse head and shoulders pattern is currently in play. Gold broke up from the blue neckline early in January, and then late last week came back down to the neckline. This is a classic head and shoulders pattern that is seen at market bottoms. These normally have about a 90% chance of working out.

The upside on this pattern is at least the distance of the head from the neckline (approximately 110 points) added to the where the price just came back down to touch the neckline at 1220 last week. Thus the target is at least $1330.

At 1330 to 1350, there would be some significant resistance to churn through.

What about the other indicators though? What are they telling us?

Well, the ADX is showing that the bears are still in control of this market, with the -DI line above the +DI line.

Also both the MACD line and its signal line are pointing downwards which is also bearish.

The relative strength index, RSI, has been trending down, along with the price since mid-January. It has moved from a reading above 70 to its current 44. However, since it has not dipped below 40, this is not providing a negative alert at this stage.

So let’s look at the stochastic oscillator, which you can see at the bottom of the chart below:

Gold Daily with Stohastic

Gold Daily with Stohastic

The %K line (the red line) looks like it is about to rise above the %D line (the black line).  This is often taken as a signal to buy. Another buy signal occurs when either line crosses above the 20 level.

So we have a reverse head and shoulder pattern with a strong probability of at least 110 points upward but we also have two out of four indicators still providing a bearish picture.

Let’s look at the weekly chart for some more clarity:
Weekly Gold

Weekly Gold

You can also see the head and shoulder pattern in the weekly chart. I like this chart as it reminds you that the $110 move I mentioned above is only a small move upward when compared to where gold has been before.

The ADX indicator is showing a slight negative trend with the negative DI line just above the positive DI line. The other two indicators, the RSI and MACD, are not looking bearish this stage.

I therefore don’t see anything alarming in this chart that would stop the head and shoulder pattern from working out and providing an upward price move of $110+.

Let’s look at the monthly chart:

Two things to note in this chart immediately.

The first is the bullish falling wedge pattern indicated by the two red lines that I’ve drawn on the chart. Prices have a good chance of breaking up from a falling wedge pattern. Hence they are called bullish.

The second is that the MACD just crossed crossed above its signal line last week. It’s early days but this is an indication to buy.

Note that the ADX indicator is bearish, and with the indicator reading 24, is showing that this has been a range bound market with no trend.

Summary

Overall, the gold charts look more positive this week than last week. There’s been a positive development on the monthly chart with the MACD flashing a buy sign, and the daily chart shows a good chance that the reverse head and shoulders pattern will work out, even though 2 of the 4 indicators (MACD and ADX) that we looked at are still bearish.

Note, however, that we have only been looking at gold in isolation. I have not posted charts on other commodities and futures. I need to do that so that we can get a handle on what is happening elsewhere. You should never try to analyze a market in isolation. I will try to get some other charts up this week, so we have a good overall picture of how gold could perform relative to other markets.

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