Gold is an excellent investment play for both fundamental, qualitative investors; and for chartists - even those investing on a very long term basis.
For the chartists among us, sometimes it is good to look at a particular situation in different time frames in order to get the most balanced impression of the different buy and sell pressures that are affecting prices. Gold has always presented good opportunities for investors who use charting as their investment or trading approach, both from the long and the short sides.
That said Gold can be very fickle and volatile on a day to day basis. Whatever your approach and investment timeframe, it is important to have strict investment rules in place that dictate suitable entry and exit points including stop loss points that limit your losses when you get it wrong.
For very long term investors the indications from the monthly charts lean more towards the idea that the Gold price currently has potentially more upside than downside. The commodity looks to have built reasonable long term support at around the $1,150 level.
Recently, the Gold price has been testing resistance at the 20 month moving average, near $1,300. Indicators such as MACD (Moving Average Convergence Divergence) also suggest that the bulls are probably in the ascendant. A move of conviction above $1,300 would signal the probability of a new long term bull phase for Gold.
For medium to long term chart investors who use Weekly charts, good support in the $1,150-$1,200 range is easier to see. MACD in particular suggests a potential bullish divergence where the indicators point to the fact that the worst of the long term selling might be past. Prices have regularly tested those support levels in recent months.
A bullish crossing of the 5 and 20 week moving averages recently was supported by what looked like a meaningful price breakout for Gold which saw that $1,300 resistance level tested. The upside attempted breakout failed and instead we now see the price testing the 20 week moving average on the downside instead.
Eventually, this to-ing and fro-ing will see a winner with a new bullish or bearish trending phase commencing.
At the moment, the bulls have the edge in the longer term timeframes. However, this is certainly not the case on the daily charts. A very bearish crossing of the 5 and 20 day moving averages to the down side, suggests that lows are more likely to be tested than highs in coming days with the 20 day moving average at around $1,260, a very important inflexion point to keep an eye on. A move above this level and we are back to broad sunlit near term uplands. A failed move to break this point on the upside and a test of those long term supports in the $1,150 range could well come in to play again.
To summarize: This is still a range trader's market for gold. A break above ($1,300) or below ($1,150) would signal high potential for a new trending phase with longer term investors finding something to get more excited about.
The longer term charts and indicators suggest a slight favor towards the bulls.
On the day charts, the bears are in the ascendancy for now unless a break above the 20 day moving average at around the $1,260 level takes place.
Charts: source - http://www.bigcharts.com
- Open High Low Close. Monthly, weekly and daily time frames.
- 5 and 20 day exponential moving averages.
- MACD - Moving Average Convergence Divergence, graph and histogram.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.