Studying those bowls and cups
5 November, 2004
Gold had a crack at breaking out above $430 yesterday, and managed
to get to $433.13 before being beaten back, but what was more
important was that the dollar broke down below its lows of last
This development greatly increases the chances that it will continue
to fall steeply towards the lower long-term trendline, shown
on the 3-year chart, which is a long way below. If so, then it
should not be long now until gold clears the big resistance around
$430. With a lot of buy stops believed to be positioned between
$434 and $440, i.e. above the intraday highs of last March -
April, sentiment should switch abruptly once the price gets above
$440, with selling drying up and an influx of buying propelling
the price rapidly higher.
There are a lot of charts with
this update, in order to illustrate various points of interest.
The 1-year dollar chart highlights the break of support yesterday,
although the break is not by a sufficient margin just yet to
be relatively sure that we're on our way.
The 3-year dollar chart shows
the downside target at the lower long-term trendline.
The 6-month gold chart shows
the action of recent days in detail.
The 2-year gold chart shows
the bowl or cup formation that has appeared this year, and that
may go on to develop a "handle" before breaking higher,
if gold does not breakout above $430 shortly.
The long-term chart reveals
that this years' bowl or cup is actually the handle of a much
larger cup that started forming way back in 1995 and whose measuring
implications call for an advance to $600 at least. Sometimes
these formations are like Russian dolls, with smaller ones of
lesser degree nestled inside them - we can see a smaller cup
and handle that developed between 1999 and 2002 on this chart,
and what happened when it broke out upside.
The reason for using linear
2-year and long-term charts is that the bowls/cups are more rounded.
Maund is an English technical analyst, holding a diploma from
the Society of Technical Analysts, Cambridge and living
in southern Bavaria, Germany.
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