Silent Archimedes

Posts Tagged ‘technicals’

Is gold ready to break out after today’s rise?

Posted by silentarchimedes on January 23, 2009

What’s going on with gold today? Gold prices touched above $900/oz today and by mid-noon was trading over $40 higher to $899 an ounce on February deliveries. The highest levels since October of 2008. As of 12:52pm, the SPDR GLD is up over $4.00 to above $88 (4.00+%). The volume of 24 million at 1pm is already twice as much as the average daily volume of 12 million. What is also surprising is that the EURO to Dollar index is dropping today, signifying a strengthening US Dollar. In most cases, these two measures should move inversely proportional to each other (Well, technically, gold rises when the EURUSD=X also rises). So what to make of this move today?

One, it’s easy to say that the huge movement up is all due to the stream of negative economic news. Most daunting was the release of Britain’s GDP, showing the country’s most severe contraction in nearly 29 years. Which also officially pulled the UK into a recession. Additionally, bad earnings from a stream of companies have made today a safe-haven buying day, which lends credence to why both the gold and silver prices are rising, and why the US Dollar is also rising, due to an influx in US Treasuries buying.

However, there are two technical signals that are also resonating quite nicely with the tech gold bugs. Let’s first look at the trading band GLD has been trading in since it’s low back in Nov 2008. I have drawn in the magenta bottom trading boundary which GLD prices essentially hit three times (11/08, 12/08 and 01/09). I have also drawn in the magenta top trading boundary which GLD prices hit twice (end of 11/08, 12/08). In order to keep within this linear rising trading band, GLD would have had to make a move to the upside in the next week or two. Today’s rise only keeps GLD within this trading band and does not signify a breakout. However, because it is a rising trading band, then that bodes well that GLD will continue to rise in the coming weeks. Should it break above the top trading band, we might see a very strong move upwards and well past $100/share. If it breaks below the bottom trading band, then the fundamental breaks and we can see GLD once again test its lows in Nov 2008. Because there is strong buying interest today, this bodes well for GLD.

GLD trading band since Nov 2008 low

GLD trading band since Nov 2008 low

The second bullish signal might prove stronger than the above signal. Let’s look at the 50-day EMA and the 200-day EMA for GLD since 2005. Something is happening here that hasn’t been seen since September of 2005 when gold began it’s next bullish leg up from the $400s/oz to $1000/oz. The 50-day EMA breaking above the 200-day EMA. Although the below chart does not show it, today’s bounce up definitely will push the 50-EMA above the 200-EMA. This is a strong signal and it is coupled with strong volume, which shows buying conviction on the upside. When two long EMAs cross each other they signal long-term trends. You can see that when the 50-EMA crossed under the 200-EMA back in Sept of 2008, GLD dropped for a few months. This break back above 200-EMA could signal strong upside for GLD prices. Coupled with the trading band shown in the first chart, and we major bullish signals for gold in the next few weeks. As in my 2009 Predictions in my previous post, I expect gold to top $1000/oz at some point this year, possibly in February.

Have fun!

GLD 50-EMA ready to pass 200-EMA

GLD 50-EMA ready to pass 200-EMA

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