ChartWatchers

GOLD: LONG-TERM PICTURE LOOKING SHAKEY

 | 

On Thursday our trend model for gold switched to a buy, which means our medium-term posture is bullish on gold; however, when I looked at a very long-term chart of gold I saw something that gave me a slightly queasy feeling. What I saw was that gold is forming a pattern now that has very similar dynamics to the one that preceded gold's crash in the early 1980s. Note the huge parabolic blowoff top in 1980, followed by a failed rally top, followed by the crash.

While the current pattern is not as exaggerated as the earlier one, the dynamics are the same – a blowoff top, followed by a rally that has so far stalled below the previous top. To be objective, we must acknowledge that the rising trend line is still intact, but the similarity between the two patterns should keep us on edge until the current pattern is resolved.



One of the factors that will have a strong influence on the future price of gold is the strength or weakness of the dollar. On the chart below we can see that the U.S. Dollar Index is challenging major long-term support. If it breaks down through that support it will be great news for gold, but, if the dollar rallies off the support, we should expect to see gold break down through its rising trend line.



Bottom Line: The outlook on gold is positive at the moment, but there are technical and fundamental issues that could result in a nasty downturn for gold. If this happens, I would expect the support at $500 to be challenged. It appears to me that this situation should be resolved in a matter of weeks.

Announcement from the Author

{{ announcement.content }}

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
Subscribe to ChartWatchers to be notified whenever a new post is added to this blog!
comments powered by Disqus