Thursday, October 24, 2013

The downtrend in gold has been broken

We have a broken downtrend in gold. The previous lower high has been breached to the upside as a result of the disappointing Non-Farm Payrolls report on Tuesday. This means that the downtrend has been discontinued. It does not necessarily mean that a new uptrend has started. There could be a period of consolidation, or sideways movement, before a clear trend emerges again. Or price action could do something else, like, for example, forming a double bottom in this area.

If there is a new trend, it will be characterised, firstly, by a new high. The price level at the close of business yesterday may not constitute that new high. Price could have further to go before that happens. After there is a retrace price will have to turn again to head north once more before it reaches the low of the previous trend.

The fundamentals indicate that there is a better than 50-50 chance that this is a new trend. The less-than-stellar delayed Non-Farm Payrolls report for September effectively means that there will have to be not one, but rather a whole series of good NFPs before the Fed can consider tapering. This could take some months to play out.

The well-respected 200 day Simple Moving Average (SMA) is hoving into view. If price reaches it, it will be the first occasion it will have done so on the daily chart since the long-term decline started back at the beginning of 2013. No doubt a conjunction of price and this indicator will result in some resistance to a rising price, but if it is breached decisively any new uptrend will then be well and truly established.

Seamus McKenna,

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