We are long gold for the long term. The last time we talked about gold, on May 20 (http://www.fxbeer.com/gold-nearing-buy-zone/) we talked about how it was a great time to add gold longs. We virtually picked the bottom and were pleased to see gold rally to a record high today, gaining $70 from our entry point.

What we weren’t pleased to see was the reaction of the market after we broke the old record of $1,249.17. The market was only able to hold above the high for 30 moments. Two more breaks higher touched just two dollars higher at $1.251.68/oz. Price action then turned sour and retreated to close $13 from the high at $1137.

We are now in a position where we have to decide whether to hang on through a potential correction or take profits. We have no doubt that gold is heading higher in the long term but the reversal today is an unmistakable technical signal. As hard as it is for us, we must head to the sidelines. We don’t see any correction below $1200 materializing but for the next few days we see the potential for profit taking. Hopefully, this allows us to re-establish our position at a more attractive level.

On the other hand, we don’t doubt the ability of gold to rally. The RSI isn’t flashing overbought signals and the case for gold buying remains strong. If we see a close above $1250 in the coming days we will happily give up the early part of that move for the chance to confidently buy into the trend.

We are trading very well at the moment. We have repeatedly warned about the Australian dollar and our downside targets against CAD and USD have been met. We were impressed by the continued weakness against the euro today and it looks like the bearish phase in the euro against the commodity currencies might be coming to an end.

Today, we want to focus on gold. For years we have been skeptical of gold bugs and their prognostications of $5000 gold. It’s a group that’s filled with conspiracy theorists and worry-mongerers.

In the last siz months, however, we have grown more and more convinced that the gold rally is just getting started. Sovereign debt worries are for real and many countries will eventually give in to inflation as a solution to their overspending. The implications are unambiguously bullish for gold.

After reaching all-time highs last week, gold has slumped. For us it’s not a matter of buy or sell, it’s only a matter of when to buy and when to take profits. At the moment we are looking for buying levels.

We see that the RSI has fallen into oversold territory but it could still fall lower. On the downside we have the fibonacci lines at roughly $1170, $1150 and $1120.  We also see various trendlines with the most meaningful one (to us) at $1140 currently. On the whole, we see a great deal of support in the $1120 – $1170 range but support thins out below that.

We will be stacking up buy orders in this range on the possibility of a quick spike toward the bottom of the range. If we see a fall below $1120 we may be forced to reconsider.

We couldn’t help but notice the resilience of gold over the past two sessions. No matter if stocks were going higher or lower, gold was edging up. It was even able to break above resistance at 1167.50 to trace out a new high.

The first test for gold will be if it can close above 1167.50. It has failed in two attempts. We are encouraged, however, because there hasn’t been a strong rejection. Instead, gold has been able to hover around 1160. It also should be noted that gold is making new highs against the euro.

We see this set-up as potentially very bullish. The top of the channel also co-incides with $1200 and we think that is a likely target in the near term. A drop below $1145 would nullify our bullishness. We are also encouraged that the RSI is not in particularily overbought territory. We would consider holding any longs until it hits 80.

The short-term trend in gold has been higher but the medium-term trend is lower. This is complicated because the long-term trend is undoubtably higher.

Everyone has an opinion about where gold prices are going. We look to the charts for answers. At the moment, gold is approaching several resistance levels that converge and will make it very difficult to see further short-term gains.

As we can see, there is downtrend resistance as well as the 50-day moving average at $1,112 and the 100-day moving average at $1097. The rally from $1045 up to $1095 has also put gold in a short-term overbought position. The silver and oil charts are also looking stretched.
We favour selling gold at this point but we would certainly cover (and potentially go long) at $1112.

All the talk in the market in the moment is about the Volcker Plan. It’s the plan the Obama administration released two weeks ago that called to end prop trading at banks with commercial clients. The latest chatter is that it’s off. The plan will be eliminated or scaled down. The plan was fraught with hurdles and it was a big negative for banking profits. As the chatter circulated, stocks made a late-day rally and risk appetitite shot higher.

One of the big winners was gold. It rallied more than $25 and broke key short-term technical resistance at $1104. It also traced out a massive outside reversal day and put in a double-bottom at $1074. The measured target of the double bottom calls for a new record high, or at least a test of $1220. The upside would be confirmed by a push above the downtrend line that comes in at $1120 today.

We have seen large rallies in gold in two of the past three sessions and we are prepared to say that the correction in gold has run its course and that the commodity is ready to resume its rally.

Gold Daily Since Oct.

Gold has rebounded after correcting from the all-time high of $1226 to $1070, which was just over the 38.2% retracement of the move from April to December. The correction was a healthy one, even if many would have liked to see something in the upper 900s before going long once again.

The rally in gold is one of the strongest trends in any market and the signal over two of the past three days has been solid. There is upcoming technical resistance at $1141.52 but if that is breached a re-test of the all time high is the favoured scenario.

Our chart shows the RSI, Bollinger Bands and Slow Stochastics. The RSI is bullish, it has risen to 60 after basing and it won’t be historically overbought until were in the mid-80s. The Bollinger Bands had contracted and now were are pushing against the upper Bol after a correction to the bottom. Look for it to ride the upper Bol like it did in Nov. The Stochastics do give some reason for pause, as we are already looking stretched but overall, the trend looks good.

The U.S. dollar is surging. We saw impressive moves all over the forex market on Thursday and with the big slide in stocks, more is likely on the way. If not through the holiday season, we will be seeing it in the New Year.

The euro and pound sterling have already broken down and USD/JPY has had a huge rebound. AUD/USD has fallen below support as well.

One chart stands out as particularily tranquil — USD/CAD.

When we see a chart like this in a volatile market, we get excited. There is a well-defined range from 1.04 to 1.0750 that has been well-established since early November. We have been watching this range trade unfold and wondering which way it would break.

Now, the clear indication is that it’s going to break on the upside. We see a strong series of higher lows and we are brushing right up against the top of the range. All around we see USD strength. Also hurting the Canadian dollar are slides in oil, gold and other commodities.

At the moment, the picture is very clearly bullish. A breakout through the top of the range would immediately target 1.0850 but 1.11 would be a more-likely result.

But wait, we are approaching the holidays and liquidity is going to dry up very quickly. The U.S. bulls may decide to take a break. If so, Thursday’s failure to break above 1.0750 will be seen as a definite sell signal. In that case, we could easily see USD/CAD falling back to 1.04, or lower.

Taking a look at the short-term intraday chart gives us reason to think that’s exactly what might be coming.

What we see here is a 15-minute chart that has reversed mightily after hitting resistance. The line coming in at 1.0636 is the 61.8% retracement of the push to 1.0750. A fall below there would likely mean a defeat of the attempt to break the range on the upside.

Overall, the picture remains bullish for the U.S. dollar and a break through the upside of the chart is the most favoured scenario. Oil and stocks both look vulnerable and further weakness in those two would almost certainly end the range trade to the upside.

In the meantime, keep a close eye on this chart and be prepared for a powerful move. It has happened everywhere else, and it’s bound to happen in USD/CAD too.

Gold fell below the Nov. 27 low of $1138 in Tuesday’s session but it seemed to stabilize on Wednesday and there are signs that the sell off may be running out of steam.

This daily chart shows a good portion of the run-up over the past few months. The rally in gold really has been incredible and it’s no surprise that there has been such an agressive correction.

At the moment, very few people can conceive that the gold rally is over. It’s one of the strongest bull markets anywhere, so the question most often asked is: where will the rally resume.

Using technical analysis, we can see that gold rallied along the upper Bollinger Band nearly continuously for three months. A good target for a correction might be the lower Bollinger, which is just above $1100.
Another reason to target $1100 is the 50-day moving average (red line). A pullback to the 50dma would be a reasonable reaction after such a strong rally.

Another reason to watch the $1100 area is that we had some technical support from a mid-November correction. That falls at $1102.

The convergence of all this support makes $1100 an attractive place for orders.

In the event of a close below $1100, be prepared to see further gold selling. In no way would the uptrend be threatened even if we saw a fall all the way to $900. If, however, gold does break below $1100, the next obvious target is the 100 day moving average, which is at $1034 at the moment. The first Fibonacci retracement level (38.2%) comes in at $1020 as well.

Of course, the correction may have already run it’s course. Today’s session generated a doji star pattern on the daily chart. This can sometime be an early (very early) sign of a turnaround. In the day ahead, if we can see a rally above $1147, we could see gold making record highs before the year is out.

Gold breaks below the Dubai Low of $1,137/oz low reached on Nov 27 in reaction to the Dubai Debt news had taken place 2 days after the $1,194 record high. The fact that gold broke below $1,137 from a higher record ($1,226), could indicate a looming close below $1,090.

XAU/USD

Gold prices reached an all time record high yesterday. Gold trading is currently on the rise and continues in that direction with an increase of about 5% to the price of $1037 an ounce. The previous record price of gold was recorded in March 2008, when gold reached the price of $1032 an ounce.

Gold is becoming more attractive to buyers as the USD continues to drop. The price increase of the gold can be seen when looking at the CAD/USD, AUD/USD and NZD/USD. Those pairs are what some call commodity effecting pairs and they continue to indicate the weakening of the USD.

This is an exciting time for us as traders as we are witnessing record high for the gold and the unprecedented weakening of the USD.  We talked about the G7 meeting that happened over the weekend yesterday and I will continue to wait and see the outcome of that joint statement since the market is continuing with the technical trend and ignoring some of the fundamental news coming out as of late.

By the way yesterday we talked about the USD/CAD below you will see the results of the pair over the trading day. Needless to say the fundamental news had some affect on this pair.

Fundamentals:  We have a few announcements today that will affect the market.

Coming from Europe we have the “Final GDP”.  The previous announcement was -0.1% and the forecast for today is -0.1%. Released at 9:00 GMT.

Two  more announcement coming are also expected. One from the EU being the “German Factory Orders m/m” which will be released at 10:00 GMT, the previous announcement was 3.5% and the forecast for today is 1.3%. Also coming from US we have the “Crude Oil Inventories”. The previous announcement was 2.0M; the expectation is at 2.8M this will be released at 14:30 GMT.

Today I want to talk about the silver (also known as XAG).  We are all aware that it is part of the commodities in the forex market. While I was traveling around the world this year, I met with many jewelry traders, most of them told me that they believe that 2009 will be the year of the silver and less of the gold. We all remember how a few years ago a few announcements affected the market in regard to the silver.  We also saw how the price of oil affected the USD over the last several years.  it looks like since the recession began and during the recession the commodity market became more and more unclear to analyze and find a trend to follow.

Coming back from my trip around the world, a smart man told me, that the longer the recession will continue the larger the demand for silver will be.

Let’s begin analyzing this pair. When we look at the silver from a few different points of view, we see a few different trends that we can analyze.  When I want to see what happened with the silver I will open a daily chart, there I will have the ability to analyze the previous buying and selling rate of silver and with that information I am able to determine a clear trend of movement for the silver during the previous trading day. From that point it is much easier to find a clear trend and determine the direction the silver is heading into whether an uptrend or a downtrend.

When viewing the daily chart, I can always find a clear trend for the silver.  However by viewing the strength of the USD against the major currencies I can also find a trend for the silver, since the silver is exclusively bought in USD. Let’s see when was the last time the market reached the same market rate; the last time this happened was August 4^th, 2008.  Clearly we want to know until when the silver will continue moving in this uptrend. For that we will need to keep on looking for the support and resistance lines as it reaches certain market levels.

Resistances-17.4200-17.7000

Supports-16.9600 – 16.700