Gold Price Chart Analysis


I have been writing about gold, or gold related topics for quite some time and the reason happens to be that I find the gold market to be one of the most intriguing, if not the most intriguing financial market in existence. Among the things that make it so interesting are the players involved: governments, central banks, individuals, hedge funds, financial institutions, etc… Gold is the great equalizer. At least right now, anyone (in the US…not sure about other countries) can own gold. Gold is sought after for its long-term price stability and as a general hedge against inflation. One of the major reasons why the gold trade is so hot right now is due to the fact that Ben “I take it in the beard” Bernanke has been inflating our money supply with a ferocity unlike anything the world has ever seen before.

It doesn’t take a rocket scientist, or a village idiot central banker to realize that the price of gold has been in a decent uptrend over the last 3 years. In this simple price chart I like to use a 100-period exponential moving average (blue) and a 200-period EMA. This gives me a nice “cut the bullshit” price/trend picture without really having to think too much. Considering the slope of the uptrend from bottom-left to top-right…if the trend were to continue (excluding dips and the like), I would estimate that 1,200.00 Federal Reserve Tickets (FRT’s…pronounced “farts”) will buy you an ounce of gold. Perhaps you’re like me and need a little bit more convincing, no?

Gold Support and Resistance

Some people would have you believe that technical analysis is pure bullshit. I would like you to believe that it is complete and utter bullshit AND extremely useful! So, what did we do to this chart compared to the last one you ask? Not a hell of a whole lot. The first thing I did was change the price plot from candlesticks to dots which aids in eliminating some of the jagged noise. Secondly, I took on a high-level study in support and resistance. Basically, I draw a few lines on the chart and all of a sudden I can say with definitive authority that there are certain places gold has been, and certain places gold could be (assuming things play out the way I want them to).

On a three year chart of Gold, drawing support and resistance lines will provide you with a very broad idea of where buyers step in to the market and sellers step out of the market. Over the last three years, Gold has found strong support at $700.00 per ounce and extremely fierce resistance at $1,000.00 per ounce. As a testament to the self-fulfilling prophecy that is technical analysis, you can see that old resistance (Feb ‘07, May ‘07) became new support (Nov ‘08) and whenever gold decides to wise up and take off past $1,000.00 we will see this price-point become new support. Intermediate-term risks in the gold trade come into play around $850.00 an ounce. If one were to witness a breakdown in price at that level, there’s nothing to hold the price up until the $700.00 support-level.

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Now let’s move on to the third chart to answer the question of when this goldgasm is going to manifest itself…

Golden Triangle

To put it simply, I give it about 8-12 months. Just draw the bottom line out to the right until it intersects the top line. If the price of gold doesn’t take off by then, it will eventually collapse. See, this Technical Analysis stuff is easy! This is the type of chart that makes Technical Analysis out to be the voodoo that it really is. The fact of the matter is that I cannot predict how our fearless leaders of finance and government will interfere with this price pattern. I cannot control the price of gold at all. I can only hope that my predictions come to fruition and that the shorts lose their asses by being on the wrong side of this trade.

So why do I think the goldgasm is going to capitulate in the next year or so? Well…you simply cannot print your way out of any kind of catastrophe. History has demonstrated this point many times. Fiat money never lasts. The dollar is nothing more than a paper promise backed by the full faith and credit of the US Government. Eventually people will wise up and realize that the theater is on fire, the doors are locked, and everyone is scrambling to get out of the single open door in a dark corner. When they stampede towards the exit (sell dollars frantically), the “price” of gold will skyrocket.

For the interest of disclosure, and if you’re a complete and utter moron and couldn’t figure out what side of the trade I’m on: I’m long gold.

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