Sunday, October 24, 2010

XGLD Oct 22, 2010

World Gold Index XGLD 3 month daily chart
Gold continues to pull back as quite a few 'experts' expected after a 2 and a half month rally to the upside. There are not too many stocks or commodities that have run up for months without a significant correction of some kind. How significant will this correction be?

Gold hit a top of $1388 on 10/14/10 and since then has dropped to a closing prince on Friday at $1323. It is below the 15dma and there are a few levels of support depending on which indicator you look at.
  • A fibonacci drawn from the low and high of this rally brings the 61.8 level at $1300.
  • The Bollinger band (Not drawn on the chart above) is at the $1290 level.
  • The next 'common' moving average is the 50 day which is at the $1285 level.
  • The fibonacci 50% retracement level is at $1270.
Nobody knows for certain where it's going to drop to, but you can use tools to determine possible support levels. Aggressive traders that are bullish on Gold and try to pick 'bottoms' can accumulate positions when they hit any one of these levels. If the price continues to drop, take another position near the next level of support.

Bullish conservative traders should wait until the support is confirmed with the price touching and rising back up. They can start accumulating positions when the price is above the 15dma.

We believe that the price trend for Gold will continue to rise based on the debasement/devaluation of the U.S. Dollar. QE2 may be in process behind the scene.  The US has also recently proposed a 2 billion military aid to Pakistan. Hmm, print up some more dollars...

Seasonally, October has been typically a negative month for Gold as seen in this 'seasonal' chart. Focus on the yellow 1968 to 2010 average.

There are 5 full trading days left in October. (The last Sunday starts off the next trading week for Nov)  The price on Oct 1st was $1309, if Gold closes below that number on Friday Oct 29th, it will be in-trend with a negative October.

There may be some money to be made with the Gold/Silver stocks in November. This recent pull back/correction has lowered many of the stocks in this sector which may have presented buying oppurtunities for those that are still bullish on Gold.

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