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Gold bullish divergence

By Colin Twiggs
January 29th, 2013 8:30 p.m. ET (12:30 p:m AEDT)

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Gold

The Gold Bugs Index, representing un-hedged gold stocks, is often a leading indicator of spot prices. Bullish divergence on 13-week Twiggs Momentum and breach of the descending trendline suggest that a bottom is forming. Only recovery above 280 would signal a primary reversal at present, but another retracement that respects support at 190 would change that.

Gold Bugs Index

Spot gold broke resistance at $1250/ounce and we should expect retracement to test the new support level. Bullish divergence on 13-week Twiggs Momentum and breach of the descending trendline suggest that a bottom is forming. We may face an extended consolidation if falling interest rates boost gold while a stronger dollar exerts downward pressure. Failure of $1200 is now unlikely, but would warn of a decline to 1000*.

Spot Gold

* Target calculation: 1200 - ( 1400 - 1200 ) = 1000



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