What This Year’s Gold Chart Tells About Future Prices

12/14/2009 11:15 am EST


Corey Rosenbloom

Founder and President, Afraid to Trade

As we approach the middle of December, let’s take a look at how gold prices have performed year-to-date and what specific level to watch for clues about the short-term future of gold.

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Gold opened 2009 at the $875 per ounce level and rallied to a peak in early December of $1,225 as fears of broader inflation combined with a continued slide in the US dollar index drove prices to record levels.

Gold prices consolidated in a lengthy symmetrical triangle beginning in January. This led to a price breakout as September began, which set a price target of $1,175 to $1,200. This target was hit and slightly exceeded just before gold prices pulled back sharply (so far) in December.

This teaches a valuable lesson regarding the range expansion and contraction principle, as well as what can happen (a sudden fall) after a sharp and steep price rise such as the one that occurred in November (where almost every single trading day was an up day).

So far, almost every day in December has been a down day, and there’s a key level to watch to see if buyers can force a retracement here at $1,100.

The $1,100 level reflects the 50-day exponential moving average (currently at $1,108), and this could hold as a short-term support level. If buyers fail to support prices—at least temporarily here—then we would be looking for prior price swing lows including the $1,025 and critical $1,000 level for references.

Of interest is that the 3/10 momentum oscillator registered the lowest low of the year in December, which signals that the indicator argues for lower prices yet to come.

The oscillator formed a slight negative divergence on the final push into $1,225, giving a faint warning signal that a deeper-than-expected retracement was in store, if not a trend reversal (if confirmed by breaks of moving averages which are now occurring).

Watch this level closely in the week ahead. It should give us a clue as to what to expect if the level holds…or fails.

By Corey Rosenbloom of AfraidToTrade.com

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