GOLD HAS A WEAK TREND

The gold price shown on the New York Mercantile Exchange Gold chart has developed some unusual behavior. This is best seen on the weekly chart of New York Mercantile Exchange gold. The chart is dominated by the long term uptrend line. This line starts in 2005, July and is confirmed in 2006 October and 2007 August. This trend line is a long term support line. In 2008, March gold peaked at $1017 and then began to decline. The decline in the gold price is defined by a trend line starting in 2008 March and touching the rally rebound highs in 2008 July and 2008 October.

This combination of an uptrend line and a downtrend line creates an equilateral triangle pattern. This is a pattern of market indecision. At the end of 2008 October the gold price fell below the long term trend line. It found support near $700. The rebound from support has been strong but it has not developed a strong uptrend. The long term trend line is acting as a resistance level. When the gold price reaches the value of the long term trend line, recently near $820, the price has reacted away from the trend line. This type of activity is bearish. It suggests gold can retest the support levels near $700.

The drop below the long term trend line shows the nature of the trend in gold has changed. If the price continues to rise it will continue to find resistance near the value of the long term trend line. Also there are two important historical support and resistance levels which make it more difficult for a new strong up trend to develop in gold.

The first historical support/resistance level is near $790. The second support/resistance level is near $850. Any continuation of the rising price in gold has two strong resistance barriers. The first barrier is the current value of the long term trend line near $820. The second barrier above this at $850 is the next strong resistance level.

The strength of a new up trend in gold is limited. There is a higher probability that gold will consolidate between $700 and $840. This is short term uptrend followed by short term downtrends and a retest of the support level.

The bearish pressure on the gold price remains strong. A genuine bullish trend in gold must be able to rise above the value of the down trend line that starts from the high in 2008 March. The current value of this downtrend line is near $890. There is a very low probability gold will develop a trend strong enough to overcome the resistance barriers and also rise above $890.


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Daryl Guppy, well-known international financial technical analysis expert. Appears regularly on CNBCAsia and is known as "The Chart Man". He is an equity and derivatives trader and author of books including Share Trading, Trend Trading and The 36 Strategies of The Chinese For Financial Traders. He has developed several leading technical indicators used by investors in many markets. His weekly analysis newsletters get favorable comment in Asia and Australia.