Gold Update: Consolidation in Gold in the Forecast

Technical analyst Clive Maund charts the latest moves in the gold and precious metals markets.

It’s a case of “so far so good” for gold, which is breaking out on schedule from its giant, complex, head-and-shoulders base, which may also be classified as a saucer base, as can be seen on its latest 10-year chart.

On the four-year chart we can see that gold’s breakout move last month has resulted in its becoming overbought, which partly explains why is hasn’t gone anywhere in recent weeks. This is normal following a breakout and it could react back to about $1,375 before the advance resumes.

On the latest six-month chart we can see that recent price/volume action increases the risk of a near-term reaction, because gold has tried twice to break out of a possible bull flag/pennant, on Thursday and Friday, and failed. This failure (thus far at least) was made more likely and perhaps presaged by the weak accumulation line. A failed pennant breakout usually leads to a period of retreat.

While gold’s latest COT readings do not preclude further advance, it is clear that it would benefit from an easing of current Commercial short and Large Spec long positions, which are rather extreme and increase the chances of some sort of reaction here.

The big picture is strongly bullish but, barring the Iran situation dramatically worsening, it looks like a period of consolidation/reaction is likely before further significant gains are made. If gold and the sector do react, it is considered unlikely that it will be by much and any such reaction may be used to add to positions across the sector.

It was rather odd late last week that, while gold tried to break higher but failed to, the precious metals sector forged ahead on Wednesday and Thursday, as we can see on the latest six-month chart for GDX. Normally, stocks rallying leads to gold following suit, but gold’s price/volume action was not bullish for the near term, and nor was the action in GDX on Friday, which saw a bearish Harami pattern appear, which is where a large candle the previous day is followed by a small one that fits inside the first one. This is bearish and usually marks a reversal, and thus probably marks the start of a corrective phase.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Charts provided by the author.

CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.

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