Gold has been pretty wobbly lately, and it’s becoming one of the big stories in markets.
Why it’s weak is not totally clear, but some of the ideas being bandied about include: A turn in real interest rates, hedge fund selling (John Paulson), or just noise.
SocGen’s Stéphanie Aymès does some technical analysis on gold, and remains bullish.
Aymès argues that the “correction” that started in September 2011 is now complete.
The two key charts:
The indicators suggest Gold has bottomed out (at 1522 last April/May) The rally has been parabolic since 2009, i.e. the break above the multi- year channel at 1045. Gold has never closed below the monthly moving average since then. It has been acting as a reliable support during any correction. It is at 1653 this month. The Stochastic indicator has settled within the bullish territory i.e. 70/75% for a long-time now (since mid- 2003). It therefore underlines the bullish trend. Last April/May it pulled back to the support zone corresponding to the corrections of October 06 and 08 (see arrows) and has tilted upwards. The indicator suggests the correction ended in April/May. Now, the Stochastic needs to break above the moving average (see ellipse, red curve) to spark a sustained buy signal.
Like in 2008 (see red ellipse) bearish engulfing patterns formed in August/September11. After the strong rally and the all-time high printed in September 11 the opening price was equal to August one (at 1803/1827) but Gold reversed sharply and so much that the monthly closing price was below August one (1623). The candlestick body in September (i.e. the difference between the opening and the closing price) engulfs the one in August. The last buyers are swept away…. However, in this instance, there was no bearish monthly close the following month. This suggests that, although there was a sudden increase in the bearish force, the bears haven’t taken over.
So, bottom line from SocGen, despite the weakness, the big technical ideas remain in place.