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Gold: Don't Change The Channel

 October 24, 2011 02:03 PM

I believe there are two simple indicators to watch on gold (GLD) for projecting it's next long-term move.  The first indicator has been highly predictable since late 2007.  It is the upward channel that gold has traded in for almost the entire period since 2007, with one recent exception.  When gold went "parabolic" in August, it traded outside the bounds of this channel.

Gold subsequently sold-off as hard as it went up, falling back within the channel and now appears neatly contained within it.  In early September, with GLD at $181.81 we, along with Dave Banister of Market Trend Forecasts, noted the probability of a pullback in price.

The first chart below is the weekly chart, showing the long-term channel.  The second chart is a daily chart showing golds recent spike and crash, putting it back within the channel:

The next indicator with predictability in supporting GLD's long-term trend are price levels.  These support levels are in green in the two charts above.  GLD is trading above one of those key levels at $154.  This price level will act as support but if violated becomes resistance.  Not shown in the chart above is the upside resistance level at around $164 - this price level will act as a level of resistance and if violated becomes support.

At a price of $157.77 (Thursday's close), GLD remains above support and is still actually in the top half of its channel. I think the most likely scenario is some further weakness and consolidation within its channel.

Additionally, the 40 week moving average (approximately equivalent to the 200 day moving average) is at $151.40 and is sloping up.  It has more or less hugged the bottom end of the channel since 2008.  This moving average could act as a third indicator of GLD's long-term trend. The 10 week and 40 week moving averages are shown in blue below:

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