Thursday, May 02, 2013
The lower chart is a monthly chart using a logarithmic scale. It shows that the long term up trend in gold is still intact. A drop from the top at 1923 made in 2011 which matches in percentage terms the drop in 2008 would take gold down to 1250 or so (purple line). So I think the intersection of that purple line with the uptrend line will prove to be very strong long term support in gold.
The upper chart is a daily chart covering price action during the past two years. As you can see gold has broken down out of the 18 month trading range of 1520-1800 and did so on very heavy volume during an accelerating drop. The breakout level (red line) is now very strong resistance. Notice that the 50 day moving average will soon be at or below the breakout point (green oval) and this emphasizes the importance of 1520-30 as overhead resistance. I doubt that the market will rally all the way back there before it heads down to support near 1250.
If you are a fan of Fibonacci here are some other reasons for expecting a low near 1250. First of all, the .382 retracement of the advance from 252 to 1923 is at 1285. Multiplying the 252 low by 5 gives support at 1260. Adding 987 to 252 gives support at 1239. Adding 377 to the 850 top made in January of 1980 gives 1227.
When might the 1250 low materialize? Well, June 2013 is 21 months and 89 weeks from the September 2011 top at 1923. And it is 8 months and 34 weeks from the last top in October 2012.