Gold and Gold shares

The Gold price has had a good week. Last weekend I felt that there was a 100$ plus move up on the way and that seems to have started in the first trading week of 2017. The USA labor report was good and it showed a strong hike in wages which is inflationary and good for the price of the yellow metal.

The weekly chart of Gold is shown below with the last low confirmed last weekend by a “morning star” candle pattern. On a weekly chart these patterns are highly predictive and that’s one of the reasons I made the call in Gold last weekend.

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Is this a continuation of the Gold bull market which many are convinced started at the beginning of 2016 or is it a rally in the bear market? In my opinion that question won’t be answered until we observe the market action at around 62% or 78% of the selloff from the high in July. That’s where the big money shorts will be sitting. The important levels are approximately 1275 and 1320. I think that whatever happens (a bounce or restart of the bull market) a move to these levels is a high probability event. Please be assured it won’t occur in a straight line and my stomach tells me that the market is close to sub wave top. I have diagrammatically tried to show the possible sub waves on the chart above.

Randgold Resources is shown below. The chart shows the upmove from the last quarter of 2015 to the high in July and the subsequent selloff. The selloff has charted a “flag” pattern which found support at around 62% of the upmove. Over the past few days Randgold Resources has broken above the higher trend line defining the flag.  I would be surprised if the share didn’t pullback and “kiss” that same line prior to a further move up the chart. That would be a low risk entry for those brave souls who have the emotional reserves, fortitude and resilient to trade in Gold counters.

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Of note is the massive reverse divergence that has set up between the price of the share and its momentum as measured by a MACD. This is a divergence that lasts for over a year and it’s a very positive sign. My friends at elliottwave.com refer to a reverse divergence as a “slingshot” which infers a high momentum and strong move. If you remember there was a reverse divergence between the UK VectorVest Composite and the VectorVest MTI which preceded the strong move in the UK market over the past month. Santa came to town in considerable style.

Please note that Gold shares require focus and need to be closely managed. A moment of weakness in applying strong risk management will be severely punished.

I look forward to discussing the markets at the webcasts to the UK and SA on Monday 9th January.

David Paul

January 6th 2017

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