Ok lets talk gold first. Got some time here and let me get at this first, silver to follow next.
Last we looked at gold, we talked about several ranges for gold to move out of. Another week or two goes by and we saw gold break its range and proceed to break out to the upper range, of 1255.
Couple of things I want to note. There has been of late a steady push by gold, where it breaks out of a range, consolidates for a bit and pushes higher, this what it has done since we last looked at when it was at 1189.
This is where it gets interesting tho. I suspect gold is ready to pull back. This is not a bad thing. It should do this to make future moves sustainable. The question that only the market can answer is how deep will the pull back be? I have no clue but observing how deep it pulls back and how long it takes to break out again tells us who is control.
So lets take a look again at what happened, where we stand now and what possible paths gold can take.
Gold has been climbing slowly out of several ranges as we can see in the above chart. These ranges or boxes are very common and appear constantly in all assets whether they be commodities, stocks, bonds, currencies etc. They are very handy in determining where price is going because when they break out of the range from a long base or time period, the move generally tends to hold.
Sometimes the range is broken and it fails followed by second attempt to break out. Other times the range is broken but fails. Generally speaking tho, the longer the box or range, the more convincing and stronger the move, thus increasing the probabilities of the move holding in whatever given direction its breaking out of.
In the case of gold, we haven't had any really long bases but it has continue to break out of the short ranges it has formed to the upside. My point in bringing this up again is to repeat how important it is to have a long base or box that forms. The other important element is follow through. For an example of follow through in terms of price, look at the purple arrow, notice on the first day gold hit 1255 and broke through it and settled higher. The next day gold continued to move higher, tacking on another almost 20 pts for the session, thus giving it follow through. This should be considered a positive.
Essentially now what we have tho is yet another range developing because now 1255 will be roughly the lower end of the range (resistance becomes support) and however far gold goes higher in the short term will be the upper end. How far it moves will be decided by the market HOWEVER we can get some clues by looking at this next chart which gives us a 6 month look.
Here is a 6 month view. Notice how above where gold sits right now is yet another range. See how things never change? Notice that on that range, the lower end is 1280s. No surprise then that gold on Friday hit the 1280s and pulled back and settled where it did. Remember how I always talk about over head supply?
This is because price has memory. Areas of price become resistance and conversely they also turn into support, thus forming their respective ranges. Again, very simple stuff that NEVER EVER changes. Which I might add, anyone who says "oh price goes up and goes down " is missing the big picture and obviously cannot grasp the concept that the ups and downs happen for this very reason, price is trading in a range from previous times. As this process goes on it will in turn tell us what happens next once it breaks and son on.
In any case, gold has another range it has to work through if it is to move higher. This will happen over and over and over and OVER. This is normal. Along the way, gold will have pull backs. There might even be pull backs that knock it out of the range. IF gold continues this upward movement, taking out each range, it eventually will hit yearly highs, putting it with complete confirmation and with no doubt of being in a solid uptrend.
All this will take time and there will be bumps along the way. At this point it is still too early to tell IF it can get to yearly highs but for now there are some convincing moves that are different from other times, I for one finding again, the December 1st overnight futures low as the main turning point. IF that are were to be breached then gold remains guilty and the sellers remain in complete control.
So to recap-
1- gold remains still in a downtrend and not out of the woods yet.
2- there has been constructive price action as of late, starting first with the price action that happened in the December 1st overnight futures market. Several key areas in price in short time frames have been broken to the upside, thus improving chart and price structure.
3- there are many levels or ranges/boxes that gold will enter. These will cause gold to have pull backs.
4- how deep will these pull backs be? Allow market to answer that question and observe how quickly price recuperates from pull backs.
5- if one is wanting higher prices from here,remember, one would prefer to see gold stay in a range or box for a long time, months, weeks, before moving higher. This helps the direction of the break out be more solid and hold up better.
As always be patient. Allow price to talk to you and guide you. Keep your emotions in check. I have seen assets pull these sort of moves before where it all looks convincing and then *poof* in a matter of weeks it gives up ALL the progress.
If you are trading gold or silver here and have profits on the recent break outs, move up your trailing stops.
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Posted 01/17/2015 05:57 am
