A sharp price decline of 8% in the price of spot gold over the past month may have created a short term buying opportunity in the commodity, but divergence on the weekly chart shows a sign that the long term trend is failing. Multiple signs that the long term trend is weakening are coming from both the weekly chart and the daily.
Following yesterday’s disappointing U.S. core durable goods orders, the price of spot gold rose to $1165.60 after opening the day at $1163.45. The commodity fell to a low on the day to $1156.25. Following this price action, the end result was a hanging man candlestick that could signal a rally in the price of spot gold if the commodity can breach above the $1169 resistance level. A short term boost in the price could be to the resistance at $1186.
The weekly chart of spot gold shows the commodity has breached below the long term trend line that began in October of 2008. A weekly close below the line would confirm the breach of the trend, providing a shift in the long term trend of the commodity.
At the time the price hit a record high price at $1265, an evening doji star candlestick pattern formed, a warning that the long term bullish trend is changing. Confirmation of the pattern came the next week with the long red candlestick. Supporting the downward move is a doji candlestick that formed the following week after the evening star pattern.
But what stands out most for the weekly chart is the divergence that is appearing on the slow stochastic oscillator. Divergence occurs when prices reach a new peak but an indicator fails to reach a new peak.
When the price of spot gold reached a new high on June 21st, the slow stochastic oscillator rose to a new high. But shortly after when the price rose to a new all time high, the slow stochastic oscillator did not make a new high. This shows divergence in the price of the commodity and the oscillator, signaling that the trend is weakening.
Divergence for the slow stochastic provides a strong sell signal in preparation for an oncoming drop in the price of a commodity, perhaps more powerful than the crossing of the stochastic lines.
This is yet another tool in a trader’s tool chest that allows one to identify potential tops and bottoms in trending markets.
Spot Gold has tested the 1200 level with a move lower to 1202.36. The current market cycle on the 30-minute chart is distribution with a slight bullish bias which is to say the market is moving sideways with greater volatility and is trading above the top line of my 34EMA Wave.
Watch for near-term resistance at 1215.3 and then 1217.9 where there is a double top. Fading the range here would one strategy - albeit aggressive - until the floor or ceiling is broken.
(For those of you who are curious as to what symbol I am using, I use eSignal predominantly for my charting and the symbol is “XAU A0-FX” you can also use this symbol at www.Quote.com to pull up a chart. I know that I can also pul this chart up on some versions of MT4 as “XAU”.)
Analysis
Triangle identified at 14-Jul 16:00 GMT. This pattern is still in the process of forming. Possible bearish price movement towards the support 1205.9 within the next 1 hour.
Supporting Indicators
Downward sloping Moving Average
Resistance Levels
| (F) | 1218.3 | Last resistance turning point of Channel Up. | |
| (B) | 1217.9 | Last resistance turning point of Triangle. |
Support Levels
| (A) | 1205.9 | Last support turning point of Triangle. | |
| (E) | 1196.4 | Last support turning point of Channel Up. |
With contracts available to trade Gold versus the other currencies like the U.S. Dollar, let’s take a look at the near-term support and resistance level in this precious metal.
The XAU/USD is is the spot gold composite contract and trade in $USD/ounce.
The 15-minute time frame is currently moving sideways in a tight range with a negative MACD Histogram reading (slight bearishness) if this chart breaks lower, look for the 30-minute time frame (below) to continue to roll-over and test the support between 1210 and 1208. If prices can move through the major psychological level support at 1200, look for support at 1196.
Analysis
Channel Up identified at 13-Jul 17:00 GMT. This pattern is still in the process of forming. Possible bearish price movement towards the support 1196.4.
Supporting Indicators
Downward sloping Moving Average
Resistance Levels
| (B) | 1218.3 | Last resistance turning point of Channel Up. | |
| (F) | 1213.8 | Last resistance turning point of Channel Up. |
Support Levels
| (E) | 1197.5 | Last support turning point of Channel Up. | |
| (A) | 1196.4 | Last support turning point of Channel Up. | |
| (G) | 1196.1 | Last support turning point of Channel Up. |
Euro hovers near 3-week high on short-covering
Euro ended Friday's trading with a biggest weekly gain since May 2009 due to broad-based rebound in global equities and recent worries over European debt crisis had eased.
Although euro rose marginally above Thursday's high of 1.2413 to 1.2417 in European morning, the pair retreated to 1.2353 in US session on cross-selling in euro as eur/jpy fell from 112.81 to 111.93 while eur/chf slid to a fresh lifetime low of 1.3718. The gain of Swiss franc after SNB said deflation risks had receded on Thursday continued to pressure the single currency. However, euro managed to rebound intra-day on short-covering and ended the day at 1.2385 in New York trading.
Versus the Japanese yen, the greenback edged higher to 91.08 in Australia after the selloff to 90.51 in previous NY session, however, the pair retreated again after meeting renewed selling there and traded sideways in Asia. The greenback later resumed recent decline to a low of 90.45 in European mid-day before staging another rebound.
In other news, the highlight of BOJ minutes was the need for the central bank to pay great attention to the risk factors that could worsen the Japanese economy. Japan's government said it aims to achieve a positive CPI in the fiscal year 2011/12 by boosting investment in clean energy and other areas with strong potential for growth.
The British pound traded with a firm undertone in Asia initially and rose to 1.4887, the highest level since May 13 after the release of U.K. economic data as Britain's budget deficit came in lower than expected in May. U.K. PS net borrowing and PSNCR came in at 16.02 billion pounds and 11.963 billion pounds respectively. However, cable retreated from the said high in tandem with eur/usd and fell to 1.4771 in US session before recovering.
Spot gold resumed its LT uptrend to $1261.70 an ounce in NY mid-day as investors continued to buy precious metals as an alternative asset.
In other news, ECB's Gonzalez-Paramo said stress tests should be coordinated by individual governments and banks and each country must decide whether it would publish stress test at individual bank level. He added Spain had special challenges because of unlisted saving banks and could not say whether Spanish banks would be too dependent on ECB funding in current climate.
Economic data to be released next week include: U.K. Rightmove hse prices, Japan All industry index on Monday, Swiss Trade balance , Germany Ifo index , EU Current account , Consumer Confidence , Canada CPI , U.S. Existing home sales on Tuesday, New Zealand Current account , Germany Services PMI , Manufacturing PMI , BoE releases minutes , CBI distribution trade , U.S. New home sales , Fed rate decision and FOMC meeting on Wednesday, New Zealand GDP, Japan CSPI , Trade balance, EU Industrial orders, U.S. Durable goods on Thursday, New Zealand Trade balance , Japan CPI, U.S. PCE , GDP and 2010 G8 / G20 Summit on Friday.
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