Wednesday, 15 May 2013

Ugly gold chart, US dollar breaking out?

The gold chart looks quite nasty at the moment, like a waterfall decline is about to happen. Is it darkest before the dawn as they say? No, it's darkest at midnight, I would think.

The US dollar is having a little surge right now and is right in the teeth of a breakout to the upside, confounding various pundits who have been saying that it is rolling over. No way. These charts were done yesterday and today it looks even more like a breakout with a nice up candle including yesterday's close in the USDX.

I am fascinated that the old inverted Head and Shoulders from 2011 still appears to be in play. The USDX measured move would be approximately 9 points, so the target would be about 90.0 on the USDX. At present, the price is above the inverted H&S neckline and has just now closed above the resistance line at 83.6:

A similar situation was also true for gold that had a huge H&S with the top at $1920 and a target of about $1300 that seemed to be negated by the late 2012 rally to $1800 but then came back into play and the price crashed to $1300 in April 2013.

I am wondering if this is true for H&S patterns in general, somethimes they appear come back into play even when there is an apparent failure of the pattern in the short term. Note the multiple tests of the blue neckline in the USDX weekly chart above, as well as tests of the resistance at around 83.6 shown by the black line.

Gold chart for comparison, not nice. Note that the price today is now about $1410 after another drop and the USDX is now at 83.82 this morning (15 May 2013). $410 for gold is below the resistance at $1430 that was key resistance in late 2010 in the quadruple top around that time (that topping zone was from about 1380-1430). gold is also hugging (but slightly below) the 200-week moving average.

I am beginning to think that gold 'should' have topped at $1430 in late 2010 for much longer but it had a bubble like move to $1920 instead and that is now being wiped out. Next key support to the downside would be at $1309 from early 2011. This was the equivalent of silver's hitting $26 in early 2011 on a correction - and silver is now well below that, although the two are not always in lock step.



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