Gold Chart: $1000 & $900 Are Key Levels ~ market folly

Friday, July 31, 2009

Gold Chart: $1000 & $900 Are Key Levels

We're back with some more gold technical analysis. It doesn't take a genius to point out that both $1000 and $900 are the key levels in gold, if nothing more for pscyhological reasons. Gold has stalled out around $1000 in the spot market numerous times and it is a level of extreme resistance. The traders over at MarketClub put out another technical analysis video on gold earlier in the week and we wanted to cover what they're seeing.

They filmed it after the big down day in gold and are now cautionary on the precious metal as their trading signals say to get out and watch from the sidelines for now. They looked at the Fibonacci retracements and identified some potential levels of support/logical areas where gold could bounce. They identified $924 as a possible entry level. They think gold will continue to pull back in the near-term but would like to get long on any sign of a nice reversal. If it drops severely, $900 could be a key support level since it is a round, psychological number that often will act as support. Keep in mind that they are performing technical analysis on spot gold and retail traders can play gold via the exchange traded fund SPDR gold trust (GLD) or the Comex gold trust (IAU). You can watch their latest gold video here.

We also wanted to point out one other thing that we were personally seeing on the gold chart. If you examine it on a multi-year timeframe, there could potentially be an inverse head & shoulders pattern shaping up. For those unfamiliar, this technical pattern is typically pretty bullish. And, since the pattern has been taking many months to shape up, this could eventually merit a big move.

(click to enlarge)

We've outlined the potential inverse head and shoulders pattern with green lines. The first shoulder was around $850 in March of last year, the head is around November of last year at $750, and the most recent shoulder has been taking shape throughout the course of 2009 around $850 and above. As you can see above, the red line at $1000 is pretty solid resistance and any major move in gold will have to break above this huge technical and psychological level. We've been tracking gold on the blog a lot lately simply because there are a ton of hedge fund managers long gold right now. David Einhorn's Greenlight Capital has stored physical gold and John Paulson's hedge fund owns a ton of GLD, among many other prominent managers.

We use technical analysis as one of the many tools in the investing/trading toolbox. After all, you can never have too much information. The fundamentals can tell you the 'why' whereas the technicals can tell you the 'when' and 'how' in regards to entering and exiting positions. We highly suggest checking out our technical analysis recommended reading list to further your knowledge in this area, at the very least to expand your information arsenal.

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