Gold has been shining brightly lately. Spot prices have rallied above the round number of $2,000 an ounce. I have recommended the long side of a number of precious metal names, including Hecla Mining ( HL) , Alamos Gold ( AGI) and Endeavour Silver ( EXK) , but prices do not move in straight lines. Let's check out a few charts for gold to see if a pullback or a sideways correction could develop.
In this daily Japanese candlestick chart of the gold ETF SPDR Gold Shares ( GLD) , below, I still see a strong rally playing out with a white (bullish) candle and no upper shadows. Prices trade above the rising 50-day moving average line and now the rising 200-day moving average line. The trading volume has increased the past three months, telling me there is more investor interest. The On-Balance-Volume (OBV) line is pointed upward to confirm that buyers are more aggressive than sellers. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but has narrowed in recent days to foreshadow a possible correction.
In this weekly Japanese candlestick chart of GLD, below, I get a different perspective. Prices have rallied to an area where previous rallies have run into trouble. GLD trades above the rising 40-week moving average line. The weekly OBV line is flattish or neutral. The 12-week price momentum study shows a lower high from January to March, telling me that the pace of the advance has slowed. This is a bearish divergence when compared to the price action, which shows higher highs from January to March. Bearish divergences are imprecise timing tools. They tell us that something different below the surface is happening, but that is not a clear-cut signal to take action.
In this daily Point and Figure chart of the continuous futures contract of gold (a number of nearby contracts linked together) below, I can see an upside price target in the $2,100 area.
In this weekly Point and Figure chart of the continuous futures contract of gold, below, I can see a $2,119 price target.
Bottom line strategy: Markets make corrections. Corrections can play out in two ways -- they can result in a decline or pullback in price or they can be a sideways correction. Keeping that in mind, I expect gold prices to correct at some point in April but I don't know what kind of correction it will be (technical analysis is not a crystal ball). Traders using leverage should think about reducing their exposure. Traders who own equities at good locations should sit pat.
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Higher than it is now, especially if the U.S. dollar breaks to the downside.
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