Gold's Poised to Bend, But Not Break
Up more than 20% since December's low, Gold prices (GLD) are certainly due for a breather. But, it's worth noting that even with a lull from current levels, gold futures have already punched through some major resistance lines. A dip from here - even a good-sized one - could still leave the bigger uptrend intact.
The chart of gold prices below tells the tale. Not one but two bearish converging wedge patterns have seen their upper boundaries hurdled in just the past two weeks. The uppermost of those lines is currently at $1200; gold futures could slide all the way back to that level and still be in a bullish mode.
Gold & Dollar Index Chart
The lower half of the chart is a big part of the reason gold prices have been soaring... it looks as if the U.S. dollar (UUP) is done rallying, and now testing the waters for a major move lower. Although the U.S. Dollar Index is still technically above a rising support line, it's pushing the boundary of that floor. And, Thursday's wide bearish swing may have served as a wakeup call for traders - the greenback can't tread water forever.
Clearly gold and the dollar aren't secure in their respective uptrend and downtrend, but the past two months are the best shot at new directions the dollar and gold futures have had in many, many months.
The key line in the sand for gold was the aforementioned $1200 mark, while the U.S. Dollar Index's first and foremost support line is currently at 95.50. Conversely, gold prices will face a ceiling at 1280; any subsequent move above that mark could inspire another wave of bullishness. The dollar's big technical resistance is still at 100.30.
Broadly speaking, though a phase of gold weakness may be in the cards, the tide has turned bullish, partially fueled by a brewing pullback in the dollar's value. The BigTrends TrendScore for gold is currently in the 90's (out of 100); anything above 60 is considered bullish.