Gold breaks out of downtrend

Yesterday gold broke above the critical $930 level, which in essence was the technical level that defined being in a downtrend vs. an uptrend. The downtrend has been in place since last March when gold hit an all-time high of $1020 or so. Even though gold has made an impressive recovery from its low just under $700 in late October, until yesterday technicians could claim that the downtrend line was still in place.

Signs are very good there may be a new all-time high in the near future, though of course that is not guaranteed. It all depends on whether you believe paper money will continue to lose value. The latest bailout package seems to be the impetus for gold’s recent strength, so clearly there are some people who are losing faith in paper money.

From here gold could climb a bit, fall back to the break-out level of $930, then accelerate up to a new all-time high. Estimates of that target range from $1040 to $1150. After that, there will likely be a sizable drop and some consolidation for perhaps a month or two.  So if you are an active trader, you could jump in on the very near-term drop toward $930, or if you want to load up without bothering too much about getting in and out, a month or two from now could be a good time.

How low gold will go is a question. One boundary is $780, based on a long-term channel line that tracks an upward French curve over years. If we get the new all-time high soon, then the retracement may not get below $850. Then there are some technicians calling for a drop to $650. The best strategy might be to focus on $850-890, keep some ammo for $780, and throw in the remainder at $650-690, which is likely to be the worst case scenario (but is not likely to occur).

Being in gold at $750 to $850 is exceptional, practically professional level trading. Getting in even now at $940 is still quite good, and waiting until the next all-time high is exceeded later this year at $1050 to $1150 is playing it safe. The target is $2000 to $3000 within a year, maybe two. Some are calling for a much higher target.

So those are your choices. Good luck.

This entry was posted on 12/02/2009 at 10:10 am and is filed under Gold. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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