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» Gold to test $680 in coming months
» The base case for gold topping $700/oz by year end is sound - Paul Walker, GFMS MD
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» Gold price could bounce - Hilton Ashton, analyst, Absa Capital

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Gold weakness temporary
Colin Abrams
Posted: Fri, 08 Sep 2006

[miningmx.com] -- WE look the chart of the US dollar gold price, which is currently breaking out of a consolidation pattern and is giving a target figure.

Though weakness is expected in the dollar gold price over the coming weeks, the long-term trend is still up and expected to resume after this correction is over.

GOLD PRICE ($) - SHORT-TERM VULNERABILITY

Trend: Short term down. Medium term sideways. Long term up.

Strategy: Sell short - but with caution.

  • The US dollar gold price has been consolidating over the past two months in a symmetrical triangle (lines 2 and 3). The price has now broken down below line 2 support to trigger a sell short signal.

  • The short-term stochastic oscillator (on top) is turning down again after a pullback, which confirms the price chart for more weakness.

  • Therefore, sell short gold bullion for more short-/medium-term downside.

    The minimum target is US$569 (on its spot price). Interestingly, that will be at line 1 support and in the region of the 200-day moving average, which provides loose support.
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    The longer-term targets here (after this correction) are $727 and then the $850 all-time high.

  • Place your initial stop-loss as a close above $630 (line 3).

    Look to narrow a trailing stop as the price nears $570 (eg, to a break of the high of the prior two days) and start taking profits at $570.

    For more recommendations and charts by the author on South African and overseas stocks, indices and commodities please go to www.themarket.co.za.