Technical observations of RossClark@shaw.ca
Gold has now retraced 58% of the decline from the December 3rd high of $1226 to the December 22nd low of $1074. Our optimum time frame for the next interim low is January 18th to 26th. The 20-week moving average (currently $1080 and rising at $2 per day) continues to be viewed as an important support that could be tested in that time frame. The RSI(14) should also drop into the 30’s during this period.
(Click on images to enlarge)
We envision two possible scenarios over the next few months. The first would develop with the second half of January forming a triangular consolidation in the $1100 to $1155 range under the resistance line from the December 2nd high. This would be a very bullish pattern, calling for an acceleration of the underlying uptrend and a move to new all-time highs within days after breaking out of the resistance line.
The second scenario would allow for a deeper correction into the $1050 to $1070 range, violating the support line from last August. This would keep the underlying bull market in more of a labored mode allowing for a test of $1170 to $1190 by the middle of March.
The large COT levels at the end of November became an overhang to further near term strength in gold. However, the six week consolidation has seen reductions in the net short commercial and long non-commercial positions by 30,000 and 35,000 respectively. In the strongest of gold’s bull markets we’ve only needed a decline of another 5,000 contracts to allow the market to stage its next significant advance. One more decline in price could be enough bring about this ‘cleansing’ of positions.
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