Technical observations of RossClark@shaw.ca
The gold price achieved its minimum measured target of $526 as of December 9th. This calculation was based upon the measurements from the consolidation of December 2004 through the breakout in September 2005. This is now the fourth consecutive decade that has produced a 7 to 8 month consolidation of similar structure followed by a breakout, minor pullback to the breakout and then a headline generating rally to a measured target. The degree of strength suggests that a quick pullback here will likely be followed by further upside progress in the coming weeks.
The red dots on the preceding charts identify points of upside exhaustion alerts resulting from the simultaneous overbought readings in the summation index and exhaustion index. This only happens when there is a dominant uptrend that accelerates to a point of persistent daily panic buying. The signals of the past three days are the first daily exhaustion alerts since 1992.
Typical action in gold following an exhaustion alert is for the price to make a quick pullback to a 12-day moving average and then move to a marginally higher high (2% to 4%). If the current action follows this pattern, topping out at $526 (on a closing basis), then we can anticipate a pullback to $510 should be followed by a rally peaking out in the $540 to $550 range. However, the next sustainable rise could be deferred until the daily RSI(14) has slipped 35 to 40 points.
The XAU (122.98) and HUI (260.97) indices should be capable of exceeding the current highs by as much as 5% over the next month. Based upon current data this equates to target in the XAU at 133 and the HUI at 285.
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