Gold prices continue to be range bound.  There has been some downward movement in the past few days, but is this a sell signal, or a buying opportunity?

If you look at recent gold prices in the chart below, you can see the most recent low was around $883.  Gold is currently just over $900.

The recent fall in the price of gold is reputed to be due to a hedge fund unloading a massive holding onto the market.  Currently the price is depressed by an upcoming sale of bullion from the IMF.  My view is that gold will find support around $885 and then rebound as it did in early April.

As I have stated before, the fundamentals for gold are still strong.  The US dollar continues to be under pressure, so gold represents a safe haven.  Many commentators have noted that the recent falls are technical rather than fundamental changes.

In the big picture, the recent decline does represent a break in the trend, but a downtrend is not yet confirmed.  This is shown in the following chart:

However, if gold prices bounce back as I expect, this does not represent a downtrend, more a change to sideways movement, I expect in front of the next upward movement.  The chart shows a similar (but smaller) technically driven movement in November to December 2007.

If you look at the price of gold against a 200 day moving average (a lagging measure), gold typically corrects when the live price exceeds the moving average by around $200.

Up or down?  My view is still that gold will increase, and I am currently holding quite a large amount, but as a longer term trade.  An astute short term trader will seek confirmation of an uptrend around $890 after gold hits support levels again.

Tags: Commodities, gold, gold futures, Gold trading

This entry was posted on Thursday, April 24th, 2008 at 12:16 pm and is filed under Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.