Gold has gotten off to a strong start in 2014, after taking a serious beating the year before. But has the rally established new highs, or are we in a bullish retracement amidst a bearish trend? This is the question technical analysts are debating.
The Long Story – Bullish
On a daily chart, this recent run to nearly $1800 has looked sound. Higher prices are accompanied by high volume and lower prices by low volume. This paints a bullish picture.
Applying Fibonacci to the chart gives us some insight on support levels, as marked by the horizontal orange lines. Each one of these zones represents a demand level, which can act as a spring board to push prices higher. Patience is a key skill to mastering the markets, so we need to wait to see prices move on above average volume before we risk our hard earned capital.
Moving Averages
To further define the trend and support levels, we turn to moving averages.
The 10 and 20 day moving averages have turned down, indicating short term bearishness. However, the 50 day, green line, is supporting the price very nicely! Look for traders and algos to start bidding prices up in the days to come.
Let’s look at longer term averages next.
Both the 100 and 200 day moving averages are below the price, acting as support. However, they are not in a bullish formation, signaling this rally is young and potentially premature.
Momentum Studies
Trading is like comedy believe it or not, it’s all about the timing! Indicators are our time checkers and tools of confirmation.
Stochastics, RSI and MACD are downward sloped and crossed bearish, telling us the retracement may not be over quite yet. Pop quiz: what would be the next key support level? Look back to the Finonacci section above to find the answer.
To trade or not to trade?
Overall prices are trying hard to forge new highs, and bullish volume suggests gold is ready to put 2013 behind and continue to rally.
However, the timing may not be right, as prices may retrace deeper to the lower supports before resuming the trend.
Updates to follow.
