Gold Market Update
GOLD - has it or hasn't it broken out?
15 November, 2004
The purpose of this article is to address the issue of whether
we have just witnessed a genuine and conclusive breakout by gold
above the key $430 resistance level, and if not, what is required
to complete the job.
It is my view that it is now
looking much more certain that we have witnessed a genuine breakout
by gold - but the final confirmation will come when it clears
$440, at which point buy stops are expected to kick-in and drive
it quickly higher. Some readers were confused and thought I was
"moving the goal posts" by talking about the importance
of gold moving above $440, after having spent weeks, or rather
months, talking about the importance of the $430 level. Perhaps
some clarification is in order. While it is true that $430 was
the key breakout point, a breakout above a resistance level has
to be by a margin sufficient to bring about a change in market
psychology, in other words it has to go far enough to make the
bears at that point realize that they were wrong - when the penny
drops they then rush to protect their positions - they cease
taking new short positions and cover their existing shorts, at
the same time emboldened bulls cease precautionary selling and
perhaps increase their long positions. The combination of these
factors often results in a rapid increase in prices, and, as
we can see looking at recent price behaviour on the accompanying
charts, we're not quite there yet. It is my estimation that once
gold succeeds in closing above $440 for several sessions, the
change in psychology will occur, and this should lead to a more
rapid advance away from the $430 area, which will then become
a support level.
The 1-year gold chart shows
the progress of the past week, with the price having pushed up
through the heavy resistance in the $430 area and, having broken
above the highs of last winter and spring, is clearly in position
to accelerate. It is short-term overbought, however, and it would
not damage the bullish picture at all were it to react back to
$430, or even to the mid-high $420's. Such a minor reaction would
not, in itself, erase the bullish implications of last weeks'
advance to a new high towards $439. However, it is considered
to be much more likely that it will accelerate upwards from here,
perhaps after a brief dip, particularly given the decidedly bearish
appearance of the dollar chart.
The dollar chart from the start
of 2001 shows that the support at 84.60 - 85 has been decisively
broken and the outlook now is for a plunge towards the lower
trendline which is, as can be seen, quite a long way below the
The 3-year gold chart with
its clear uptrend channel gives an idea where gold will go in
the event of the dollar dropping to the bottom of its channel.
It should go to the top of its channel at about $480 - $500.
A "wild card" for
the US economy and especially for the US dollar is that, as the
US currently has colossal debts and deficits, vast quantities
of dollar assets are held overseas, notably by China and Japan.
This means that the economic fate of the US is, to a considerable
degree, in the hands of its creditors. China alone holds such
an enormous quantity of dollar assets that, just by itself, it
could send the dollar straight into the abyss if, for whatever
reason or reasons, it decided to have a clearout, although conventional
wisdom has it that if it did this it would be shooting itself
in the foot.
A newly prepared "Overview
of 30 Gold Stocks," containing a brief technical assessment
of each stock, including many of the mid and large caps, is available
to subscribers on my website www.clivemaund.com and a similar
overview for silver stocks is in the pipeline.
Maund is an English technical analyst, holding a diploma from
the Society of Technical Analysts, Cambridge and living
in southern Bavaria, Germany.
subscription website at clivemaund.com.[You can subscribe
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