Technical observations of RossClark@shaw.ca
The fifteen month consolidation phase that Gold prices have been travelling through continues to mimic those of 1994, 2002 and 2007. The next event in 'the pattern' should be a test of $990.
This week's low of $913 has retraced 59% of the rally from the April lows (in line with the 49% in '94 & 60% in '02). Prices have also declined to test the lower Bollinger Band in gold and the senior indices (XAU, HUI, GDX & XGD.TO). June 17th produced a daily Sequential buy setup that has been common around interim lows and the time frame for yesterday's low matches that of the patterns the market is following.
Once prices turn higher we will need to watch the rally very closely. We are approaching the point where the comparative patterns diverge. In 2002 and 2007 the stocks rallied in sync with the bullion, taking out analogous resistance levels and bullion went on to stage major advances.
However, in 1994, as gold rallied to a multi-month high (06/21/94), the stocks failed to surpass resistance with the result being that bullion and stocks remained in a broad trading range for another year. To confirm a lasting breakout above $990 we will want to see the related stock indices (XAU, HUI & GDM) close above their May highs.
Rarely do all the pieces in analysis line up on one side. The speculative and commercial positions in Comex futures remain high, down only 14,000 and 18,000 respectively, as of the CFTC report on June 19th. If there had been a reduction of 40,000 or more contracts in the speculative position, thereby putting enough bulls back on the sidelines, it would have provided additional buying force to punch through the highs once sentiment turns more positive. Typically a reduction in the positions of this magnitude will allow for rallies of $20 to $25.
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