Monday, August 29, 2011

A technical view of gold prices from Olson Global Markets

On weekly bar charts, GLD (the largest gold ETF) hit an all-time high
of 184.82 on Monday August 22nd. When it did, it hit key trend line
resistance seen on a semi-log scale drawn off the highs of May 12,
2006 and of March 17, 2008. It also hit another resistance trend line
drawn off the lows of May and June 2008 as well as the highs of
September 29, 2008, February 20, 2009 and December 3, 2009. What does
all this mean? It means that the 184.82 level on GLD is important over
the intermediate-term. Overbought stochastic and RSI readings on
weekly charts add to the importance of this level.

With a “gap” at 163.87 on GLD left “open” on August 5, 2011 (which is
roughly equal to $1,650 for nearby gold futures), many technicians
expect a pullback to that level to occur sometime soon. Worries that
Federal Reserve Chairman Ben Bernanke could have introduced another
round of quantitative easing at his Jackson Hole missive did not
materialize. And although the absence of such stimulus should have
calmed the gold markets down, it did not. Worries over Greek sovereign
debt began to fester once again, along with the uncertainty of how the
European Central Bank and its President Jean-Claude Trichet might
handle that deteriorating situation. As a result, a partial recovery
in gold prices was triggered by week’s end.

From this vantage point however, a “retest” of the 184.82 area on GLD
should offer an opportunity to “lighten up” on GLD or gold for the
intermediate-term. A solid surge above it, however, would suggest that
a new and steeper trajectory for gold prices, and the fear that it
represents, could emerge instead.

Jim Donnelly, Olson Global Markets

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