{"id":18097,"date":"2011-01-14T11:16:43","date_gmt":"2011-01-14T16:16:43","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=18097"},"modified":"2011-01-14T11:16:43","modified_gmt":"2011-01-14T16:16:43","slug":"we-called-the-pullback-in-the-price-of-gold","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/01\/14\/we-called-the-pullback-in-the-price-of-gold\/","title":{"rendered":"We Called the Pullback in the Price of Gold"},"content":{"rendered":"

By Sara Nunnally, Editor, Smart Investing Daily, taipanpublishinggroup.com<\/span><\/strong><\/a><\/p>\n

The price fluctuations in gold have panned out quite nearly how we thought they would. (Pun intended.)<\/p>\n

Last Thursday, I told you that I thought the correction in commodity prices<\/a> — specifically gold — wasn’t over. By that point, the price of gold had dropped below $1,370, down from highs at the very end of 2010 of more than $1,420 an ounce.<\/p>\n

But gold experienced a bit of a bounce, and I warned readers not to be fooled by a two-day correction in commodities.<\/p>\n

I noted:<\/p>\n

First, gold appears to have broken its near-term uptrend. Second, the most recent peak failed to make a higher high than early December’s high price. This could signal more downside.<\/em><\/p>\n

How much? The first point gold could find support would be in the $1,375 range, the point where we saw gold prices start to stabilize on Wednesday. Should this point fail, the next level of support should come at $1,350.<\/em><\/p>\n

I expect we’ll see gold trade in wide swings between $1,350 and $1,400.<\/em><\/p>\n

And that’s what’s been happening over the last five trading days.<\/p>\n

Take a look at this chart from Yahoo! Finance representing January futures traded on the COMEX.<\/p>\n

\"Gold\"
\nView larger chart<\/a><\/p>\n

Between Friday, Jan. 7, and Wednesday, Jan. 12, gold futures have traded more than $30 higher per ounce!<\/p>\n

That’s a sizable move, and one that might give gold the momentum to push back into that uptrend…<\/p>\n

Might.<\/p>\n

Could the Price of Gold Break Down Further?<\/h3>\n

You see, gold has been forming an Ascending Triangle. These formations have a flat top line representing resistant for higher price movements, and a rising bottom trend line forcing prices into that resistance.<\/p>\n

(See Thomas Bulkowski’s write-up for this pattern here<\/a>.)<\/p>\n

These formations can break out in either direction, and we saw gold prices drop below that bottom trend line last week.<\/p>\n

Price movements this week represent a throwback common to this formation during downside breakouts.<\/p>\n

For downside breakouts, that means gold should find resistance at that former trend line (at just under $1,390) and prices should move lower from there. Ascending Triangle formations that break down have an average move of 19%, putting gold prices at about $1,126.<\/p>\n

A correction like that seems a bit harsh for this economic environment, but I wouldn’t be surprised to see the price of gold drop back below $1,360… at which point, I would consider gold a buy.<\/p>\n

Our levels of support that I mentioned in last Thursday’s Smart Investing Daily<\/em> are still relevant: Look for support at $1,375, and if that level is broken, look for support at $1,350. I did mention that if $1,350 support were broken, we could see prices fall to $1,250, which could be the drop from the Ascending Triangle formation…<\/p>\n

Again, a move like that would be — in my opinion — way overdone, but it’s in the chart, so we can’t ignore the possibility.<\/p>\n

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy simplify the stock market for you with our easy-to-understand investment articles<\/a>.)<\/em><\/p>\n

Big Move in JJG and DBA — Did We Miss It?<\/h3>\n

If we look at other commodities, we can see that the majority of them have all started bouncing. Oil closed at nearly $92 a barrel on lower supply data, and agricultural commodities have popped due to lower production forecasts<\/a> of soybeans and corn here in the U.S., and the horrible flooding in Australia (which has also affected coal mining).<\/p>\n

Look at the gains grain futures made yesterday:<\/p>\n

\"Future
\nView larger chart<\/a><\/p>\n

Those two agricultural opportunities I noted last Thursday, the iPath<\/strong> DJ-UBS Grains TR Sub-Idx ETN (JJG:NYSE<\/a>)<\/strong> and the PowerShares<\/strong> DB Agriculture (DBA:NYSE<\/a>)<\/strong>, climbed 3.45% and 1.62% respectively.<\/p>\n

These moves were sudden, with massive gap-ups first thing in the morning<\/a>.<\/p>\n

We have to be careful with gaps… they can be filled, meaning the gains these two have made could be lost over the next couple days. That means we might not want to jump into these just yet.<\/p>\n

On the other hand, these gaps could be Breakaway Gaps, which could indicate the start of a new trend. In the case of JJG and DBA, that could mean moves higher.<\/p>\n

Either way, we should be OK to wait to see. According to Bulkowski, performance improves two-thirds of the time. We can afford to make sure these gaps don’t get filled before we consider JJG and DBA.<\/p>\n

I will put a note in our weekly wrap-up on Saturday detailing any changes or confirmations for Smart Investing Daily<\/em>.<\/p>\n

As always, feel free to write us with your comments, questions and suggestions. Smart Investing Daily<\/em> reader S.E. wrote to us, and we profiled his question in Monday’s article, “Should You Invest in Rare Earth Metals?<\/a>” We’d love to hear from you, too. You can email us at: editor@taipanpublishinggroup.com<\/a>.<\/p>\n

Editor’s Note:<\/strong> President Obama Wants to Confiscate Your Gold! Buried deep in the 956-page healthcare reform bill is a little-known provision that could set the stage for the federal government to take away your gold. But there is one safe gold investment class that could make you 12 times your money in the next 18 months… Learn all about this gold investment.<\/strong><\/a><\/p>\n

About the Author<\/strong><\/p>\n

Sara is Co-Editor of Smart Investing Daily<\/a><\/em>. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, <\/em>and CNBC’s Squawk Box,<\/em> as well as numerous radio shows around the country.<\/p>\n

As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.<\/p>\n","protected":false},"excerpt":{"rendered":"

You see, gold has been forming an Ascending Triangle. These formations have a flat top line representing resistant for higher price movements, and a rising bottom trend line forcing prices into that resistance.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-18097","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/18097","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=18097"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/18097\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=18097"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=18097"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=18097"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}