Technical Analysis of Gold
In the current financial and economic turmoil the question is often asked whether a precious metal, such as gold, can still act as a reliable store of value. We will no doubt only be able to answer this question in the longer term, but if we look at the fundamentals there is little doubt that metals, such as gold and silver, will remain good long-term investments.
If we look at Fig. 12.07(a) we see that, over the medium term, gold seems to have run into some problems. The price increased significantly between 1st July and 22nd August, but since then we have seen a net decline from just below 1,900 to the current level of 1,729.25. It actually dropped to 1,532.65 on 26th September before starting to recover.
On 27th October the price broke out of the Ichimoku cloud again, at which time a renewed bull run seemed quite likely. After that it dropped back into the cloud, however.
Right now, the price is hovering close to the upper limit of the Ichimoku cloud. The green Chinkou Span line is at the same level as the price 26 periods ago and the red Tenkan Sen and the blue Kijun Sen lines are either in the cloud or touching it. All this confirms that the market has entered an uncertain stage and that the best thing right now is to wait.
Once the price moves above the recent high of 1,798.15 we saw on 7th November, a long trade becomes feasible. Short traders should at least wait for a break below 1,603.25, which we saw on 20th October 2011.