Tuesday, July 18, 2006

Gold at a cross road

When looking at gold, I see it standing at a cross road. One direction promises a brilliant bright shiny metal future, the other direction, dimming oxidation and a lack luster existence. As gold tests the bottom of this trending support, we see a divergence has formed on the 14.3.3 stochastics and has also moved to just barely out of the upper reversal zone (78%ile at close). If Gold continues down tomorrow, I will expect drop to $600, matching the width of the channel, the gap from 2 weeks ago and the consolidation in April. A further move could push Gold lower to $550, 2 channel widths and the prevailing support level from January through March.
A bounce off of the current channel or the 38% Fibonacci line at about $620 could be the confirmation to see Gold continue the bullish run back to the top of the channel near $680 if not the highs hit in May at $740. I would be willing to accept either direction with some confirmation. Tomorrow very likely will offer the clarity needed for a big move and sizable profitability.
My personal bias is to see Gold follow the divergence and stochastics losing ground and pushing to the bottom side. If you don’t have a futures account or account to trade spot gold, look at the AUD which is back in line with gold pricing after fighting the bullish move in gold previously in the year, the AUD seems to be correlated again. If you are looking to play gold weakness with the AUD but aren’t convinved that the USD can continue, look at the set ups with the AUD/JPY and the EUR/AUD, both are also at key levels of support/resistance.