Gold Market Update
Wait and watch
21 December, 2004
As long as gold's fortunes
remain hostage to the movements in the dollar, that is until
investment demand is the primary driver, then it is to the course
of the dollar that we must look to ascertain movements in the
The dollar remains in a dominant
long-term downtrend, although it broke out upside from a steep
intermediate downtrend early this month, and is now in position
to make a countertrend run towards the strong resistance in the
85 area. The fundamentals remain awful, and with the oversold
condition of a few weeks ago unwinding, it may not rally significantly
from here at all - the decline could resume at any time. This
being so there are 2 clear points at which it becomes favourable
to short the dollar (go long gold). One is on a rally up to the
strong resistance in the 85 area, where the probability of the
rally ending and the larger downtrend reasserting itself is high.
The other is on a clear break below the low early in the month,
which will signify a failure of support at this level.
If the first scenario comes
to pass and the dollar rallies to the 85 area, then gold is likely
to simultaneously react back to its long-term uptrend channel
line currently at about $410, where it will be an automatic
trading buy, with optional close stops. Conversely if the dollar
breaks to still lower levels from here, by dropping below 80,
then gold would be expected to resume its advance towards its
upper long-term trend channel, now at about $490, making gold
a buy on this dollar breakdown.
In the meantime it is considered
wisest to wait and watch how this plays out. This applies also
to gold stocks - our general stop on the HUI index was triggered
at 218, and the index is now marking out a potential downflag
beneath resistance at about 220, indicating potential for another
sharp drop to the 195 - 200 area.
Maund is an English technical analyst, holding a diploma from
the Society of Technical Analysts, Cambridge and living
in southern Bavaria, Germany.
Visit his subscription website at clivemaund.com.[You can subscribe
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as a consequence of trading on the basis of this analysis.
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