We’re not huge fans out old-fashioned trendlines but when a line has been tested and it has held several times, it’s important. That’s the case with the long-term uptrend in gold. The support level proved to be worth watching but it broke today and the outlook for gold is looking increasingly negative for the short-term.

The trendline is from the credit crisis low of $682.41 on Oct. 24 2010 through the November low of that year and a low in January 2010 and March of this year. Gold bounced off this trendline last week but the bounce was shallow and now the market appears to breaking definitively lower.

Today, gold is down $19.50 to $1164.05 per ounce. The next significant level of support is the 200-day moving average at 1148.07. The 200dma hasn’t been breached since January 2009. Further support rests at $1043.

We hate to be short in an uptrend but will look to a $10-20 rally as an opportunity to establish a short position.

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.

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.

What a market we are experiencing today!!!  It spells money!!!

As we can see from the trading day yesterday the oil continued its movement in the direction of an uptrend reaching the price of $75.38 a barrel. This was a 10 month high for oil after the amazing summer of 2008 when oil reached $140 a barrel.  This direction continues to support the weakening of the USD, while supporting the CAD and AUD, the commodity driven currencies.

When will this trend stop??

Maybe a few traders have an idea when this will end, however when we look at technical analysis we continue to clearly see the trend.  The announcements we mentioned above coming from the US have already been published and both were positive for the USD. Will we see a market correction or will the trend continue? Question left unanswered will be answered by the traders during the end of the London session and into the US session. Make sure to always examine your support and resistance lines before entering your trades.

Let’s take a closer look at a few pairs:

USD/CAD

I’m not going to talk about the oil, but we can talk about this pair and how it is affected by the oil.  We can find that yesterday this pair made more moves supporting the price of oil, leading to a stronger CAD. Here are the Support and resistance lines for this pair today.

GBP/USD

Employment data in the UK today showed that the country lost 20.8K jobs, less than the 24.5K expected, helping the cable gain a bit against the buck. The gain put it above the 1.6000 level temporarily, though it has come off a little since then going back to the range it was trading in during the last few trading days.

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

Coming from US we have the “Core CPI M/M”.  The previous announcement was 0.1% and the forecast for today is 0.1%. Released at (12:30 GMT).

One more announcement coming from the US  “Unemployment Claims” which will be released at  12:30 GMT, the previous announcement was 521K and the forecast for today is 524K.

AUD/USD

The AUD is refusing to stop its uptrend!! in order to understand the change this pair has made an increase of more than 41% in the last 7 month. We can now see very clearly how this pair continues to move in an uptrend. Moreover we continue to receive good results from Australia that continue to support this uptrend while the US results continue to be mixed.

In a country where agriculture and mining products constitute 60% of exports, it is crucial for us to understand the dramatic impact that commodities have on the currency market and specifically on the Aussie dollar (see this week’s blogs entry talking about the gold). Besides, Australia’s geographic position allows it to maintain trade relations with emerging markets in South-East Asia where trade is done in Aussie dollar not USD, thus continuing to support its uptrend.

In other word, we have more people buying the AUD and selling the USD.

Keep looking at the charts and look for the fundamental announcement coming from Australia and the US that can directly affect this pair

In the case of this pair we will not put any indictors on the chart but rather we will put 2 lines on that chart and view how simple and easy this uptrend is to analyze and see. We will continue to observe this pair closely heading into the fourth and final quarter of the year.

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

Coming from United Kingdom we have the “PPI Input M/M”. The previous announcement was 2.2% and the forecast for today is -0.9%. (08:30 GMT). A few more announcements are also coming. One is from Canada and it’s the “Employment Change” which will be released at 11:00 GMT. The previous announcement was 27.1K and the forecast for today is 4.9K. We also have the “Unemployment Rate” coming from Canada, the previous announcement was 8.7% and the forecast for today is 8.8% (11:00 GMT). From the US we will have the “Trade Balance” previous announcement was -32.0B and the forecast for today is -32.8B (12:30 GMT). Also don’t miss the “BOC Business Outlook Survey” AT (13:00 GMT).