Is gold’s long-term up-trend still intact?

Gold has fallen substantially from the highs of $1922/oz, and the break of the $1530/oz support allowed the price to crater to a 38% decline.

Technical analysis tells us that the relative steepness of a trend-line is important; if we evaluate the up-move from October 2008, which followed a 34% decline, one could be inclined to ascertain that the rate of ascent was unsustainable. Gold prices from that trough later went on to $1922/oz – a 175% gain.

If we take the base of that trough, at around the $700/oz mark, and extend it both ways we find that it coincides with an earlier trough from the September 2008 lows of $380.

The fall of the gold price to the $1180/oz levels, and the subsequent bounce which validated the trend-line (three points were touched), technically put gold back in a short-lived bull market, defined by a price increase of 20%.

Spot gold weekly chart

What we now have is a rising support from those $380 lows, which makes the $1200/oz mark significant.

The ricochet of this trend-line culminated in a failure at the end of August to execute a daily close above $1415 (38.2%). This was something of a key level and the failure to capitalise saw the sell-off take place at the top band of the channel.

$1292/oz saw increased bidding levels in the aftermath of the US Federal Reserve's no-taper decision last week, so on the daily chart there has been a sidestep by the flag channel from those $1180 lows.

Spot gold daily chart

This brings gold back over $1325.8/oz (a 23.6% Fibonacci retracement of the entire move from the $1800 highs back in October 2012).

There is a secondary trend-line which I tentatively drew last week – it was unconfirmed as I only had two points touching, yet was later validated by the bounce from the $1307 levels. Nobody can discount the potential ‘dead cat bounce’ effect, but as a trader who can swing trade and change direction on a nickel, it’s always worth considering a short-term trade.

The one-hour chart has produced an inverted head and shoulders, with the neckline around $1325/30. The price has already seen an extension to the $1340/oz zone before falling back to the present $1330 level – i.e. 50% of the potential up-move.

Spot gold hourly chart

The confluence of the 50 and 100 period moving averages adds a great deal of weight to this neckline area, and the textbook example of a return to test it could easily set up a long trade which – per the head and shoulder pattern rule – has a minimum profit target of $1349.

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