Thursday, August 29, 2013

Gold is at a trending crossroads

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The fundamental reasons for shorting gold are as compelling as they ever were. US Quantitative Easing is on the way out, the only question is the speed with which it will be tapered and then discontinued altogether. Already, those emerging market currencies that provided income for yield hungry global funds are suffering severe withdrawal symptoms as the same funds bring their cash back to the mighty dollar (yes – it is still the reserve currency for the world). Gold is in the same boat, except it is undergoing an adjustment retrace from a precipitate fall after the QE writing first appeared on the wall.

From the Technical Analysis point of view, the precious metal is now approaching something akin to the triple witching that afflicts options a few times a year.

The weekly chart above shows the confluence of trend lines made up of the top of the channel that has been formed by the retrace in the dominant downtrend, and the dominant downtrend itself. The 200 period Simple Moving Average (SMA) is in the same vicinity, and price is on a collision course with it.

Dr. Alexander Elder, for whom we have considerable respect, has always been a proponent of multi-time frame systems of trade selection. We like this idea too and, consequently, below you can see the situation as it pertains to the hourly chart:

This shows a well defined head and shoulders formation, which is an augury for a fall in the price of gold from here. 

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