Gold Watershed At $940
By Colin Twiggs
June 30, 2009 4:00 a.m. ET (6:00 p.m. AET)
Spot gold is consolidating between $920 and $940. A close below $920 would test primary support at $870. A close above $940 (or intra-day penetration above $950), on the other hand, would form a bullish ascending triangle — indicating a breakout above $1000. In the longer term, failure of primary support would signal a test of the November 2008 low of $700; while breakout above $1000 would offer a medium-term target of $1130, calculated as 1000 + ( 1000 - 870 ), and long-term target of $1300.
Gold miners, however, tend to lead the actual gold price. The Gold Miners Index [GDX] displays a bearish ascending broadening wedge. Breakout below $35.50 would test the lower border, threatening a secondary correction. Recovery above $40 would indicate an upward breakout and continuation of the primary advance — a positive sign for spot prices.
The spot silver primary up-trend is a positive sign for gold. Currently testing medium-term support at the lower trend channel, reversal above $14 would indicate a primary advance to test the upper channel border; while failure of support would signal trend weakness. In the longer term, failure of primary support at $12.00 would warn of reversal to a primary down-trend.
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Brent Crude's narrow consolidation between $67 and $73 is a continuation signal. Upward breakout is likely and would signal another advance to test the upper trend channel. Downward breakout would warn of a secondary correction.
The weakening dollar increases demand for gold. The US Dollar Index is in a primary down-trend, testing resistance at 81. Upward breakout is unlikely, but would test the March 2009 low of 83. Respect of resistance, confirmed by penetration of support at 78, would indicate a primary down-swing with a target of 73 — calculated as 78 - [ 83 - 78 ].
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