Update: The Technical Argument for Gold

In early April 2017, we made a technical argument for further downside in the U.S. dollar.  In fact, after drawing our trend lines, a falling wedge pattern became apparent, exposing overhead resistance at 100.95.  We argued that if the currency failed at that point, it was likely to reverse lower and stay within the pattern.

That’s exactly what happened.  And, as you can see in the chart of the U.S. dollar, there are more traders desperate to be short at the moment than long. 

Should the pattern persist, the U.S. dollar could test a November 2016 low of about 98.  Of course, nothing is a guarantee, but should the pattern hold, it’s a possibility.  Once at 98, that the currency would find itself at an interesting tipping point. 

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At that point, it could bounce and move higher, keeping the wedge pattern intact, or it could break down, destroying the wedge, establishing a new downtrend.  This is why trend line and pattern recognition is an essential analytical tool.

Eventually, as the price grinds lower, selling pressure could begin to fade, as sellers lose interest altogether.  Should the dollar fall to 98, we could begin to see bargain hunters emerge again and ride a potential push higher, potentially testing 100.

Again, though, we have to wait to see if the pattern holds or not.

Of course, gold has no problem with downside at all. 

With the U.S. dollar on the way down, gold did something it hasn’t done since November 2016.  It broke above its 200-day moving average, well above triple-top resistance points.  It’s at this point that confirmation of trend is important to watch for, as well.  One of two things can happen, near-term.

One, gold could fail at current double-top resistance with overbought reads on Williams’ %R (W%R), relative strength (RSI) and MACD.  Or, two it could break above prior resistance at $1,294.10 and retest a previous high of $1,372, best case.

While doable, we need to keep an eye on it for potential, quick downside.

If we look at a five-year chart of gold prices, it hasn’t had much luck breaking much higher than $1,372 before breaking down and turning lower.  That can always change, but it’s worth watching in case you have a good deal of money invested.

Also interesting to note, gold bulls have a tendency to call for wild moves on gold on breakouts. We can’t tell you how many times we’ve heard about $5,000 gold prices, only to watch the commodity crash and burn shortly after.

Do yourself a favor.  Draw your trend lines.  Watch for support and resistance.  And be sure to pay attention to what the chart is saying, not what the herd thinks.

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