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Gold Technical Outlook: Looks Set for Upside Break

Sep. 11, 2011 8:18 PM ET
Chris Capre profile picture
Chris Capre's Blog
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Looking at the weekly chart on Gold (vs. USD), the sell-off from two weeks ago at the rejection of $1900 was impressive not so much in how much it dropped in a single week, but on how well it recovered. The following act in the next week was a solid weekly gain of 3.4% from an opening price of $1822 - 1864 closing towards the highs suggesting buyers were holding into the weekend and thus not taking profits. The following week was a sell-off but very mild in nature and a third week of price rejecting off the weekly lows. Three weeks of selling and three weeks of strong rejections off the lows clearly communicating to us anytime the shiny metal is sold off, buyers are eager to come back in. And each time, they are doing so with more confidence because every time, they are buying at a higher price suggesting they are happy to take any dips as an opportunity to buy (or invest/hold) more gold.

This clearly communicates the underlying buyers are not afraid of the short term effects CME margin hikes may have on it or their futile (and puerile for that matter) attempts to manipulate something the market clearly wants to have and to hold. If they were afraid, they'd simply wait for a longer or deeper correction but the elevated buying rejections/levels suggests traders and holders appetite has not been satiated and continues to be part of their desired palette.

As a trader and quantitative technician, this all communicates continued upside pressure and a likely breakout (and close) above the $1900 barrier is coming soon to a market near you. We feel whoever is attempting to depress the prices (albeit sovereigns or manipulators alike) will soon have to yield the $1900 barrier and a close above it.

It should be noted that Gold (vs. USD) has only closed down on a weekly basis 13x this year out of 37 weeks (35% of the time). Of those 13x it closed down, only 5x (38%) did it close the following week down. We suspect this week will follow the majority pattern of another up-close on a weekly basis with renewed interest (not like people needed a reason) as a result of the Greek Tragedy (which looks set to bring down the Euro), a Moody's downgrade of France (vis-à-vis Credit Agricole being exposed to €21B+ in Greek Debt) thus adding to the 3,00 reasons people would flock to gold faster than geese flying south after seeing a cold front.

*On a historical note, it does seem ironic that the culture which spawned European and Western civilization seems set to bring it down (at least economically).


We would also like to note the monthly close up/down ratio on a monthly basis has been increasing over the last 7 years from a 50% ratio (2004) to a 75% ratio (2010 and so far for 2011) with the only time the ratio was weakening (2007-2008) where gold only gained 11.4% on the year. After this, the ratio began tightening and is now at its strongest levels in the last 10 years with no sign of this trend abating anytime soon.

We suspect either this week or at best by the end of Sept., we will see a weekly close above the $1900 barrier and this technical break of the highs will only encourage traders and holders another upside run is about to begin. Dips to $1700 should be considered (dare we say) 'golden' opportunities to buy setting short term targets at $1875.

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