Gold is now in the fourth week of a flag formation and is testing support at $1250/ounce. The best flag signals are in weeks 3 or 4. With no immediate prospect of a breakout, this raises the question: is gold losing momentum?
Increased likelihood of a Fed interest rate hike has certainly taken some wind from the sails …..as has recent Chinese stimulus which at least postponed (but not averted) Yuan devaluation against the Dollar. While this affected short to medium-term prospects, factors driving long-term demand for gold are unaltered. From a technical view, narrow candle ranges over the last 4 days suggest increased buying at the $1250 support level. And breakout above the flag remains a buy signal ……at least into the fifth week.
Silver experienced a much sharper sell-off, but on the weekly chart still looks likely to respect support at $16.00/ounce. Respect would suggest another test of resistance at $18.00 to $18.50.
On the weekly chart gold remains on track for a test of $1300/ounce. For as long as support at $1200 holds, we retain our bullish view on gold.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
With the added incentive of a weakening Aussie Dollar, Australian gold stocks, represented here by the All Ords Gold Index (XGD), remain in a strong primary up-trend. A 13-week Twiggs Money Flow trough above zero and breakout above the recent trend channel are both bullish signs.
Disclosure: Our Australian managed portfolios are invested in gold stocks.