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Capital Gold Group Report: Gold, ‘Off The Charts’, May Target $1,500: Technical Analysis



October 15, 2009 by · Leave a Comment 

By Glenys Sim

Oct. 7 (Bloomberg) — Investors should hold onto long
positions in gold as bullion has “significant upside
potential” to reach as high as $1,500 an ounce, Barclays
Capital said, citing trading patterns.

“Having rallied ‘off the charts’, we are left to resort to
projections and extrapolated trendlines to forecast where the
move might stop,” Jordan Kotick, global head of technical
analysis at Barclays Capital, wrote in a note e-mailed today.

So-called trendlines are used to determine momentum and are
found by connecting an asset’s high prices and low prices over a
given period to form a channel.

“Channel resistance currently is at $1,370; history
suggests a run at $1,500,” Kotick wrote. “Taking it a step at
a time, in the coming weeks, we view consolidation above $1,020
as extremely positive, targeting $1,050 initially, and $1,120,”
he added.

Gold for immediate delivery gained as much as 2.6 percent
to a record $1,043.78 an ounce yesterday, and traded at
$1,038.46 at 10:35 a.m. in Singapore.

“We suspect the rally is wave 3 of 5, indicating an
eventual push toward the $1,120 area and potentially beyond into
year end,” wrote Kotick, referring to the Elliott Wave theory,
which holds that market swings follow a predictable five-stage
pattern of three steps forward, two steps back.

“Initial resistance is found in the $1,050 area but that
is way too conservative given the springboard that a wide 18-
month range provides,” he added.

Not Unstoppable

To be sure, when compared against the major currencies,
it’s clear that the gold rally is “by no means unstoppable, as
none of the charts show prices concurrently pressing against
their respective all-time highs,” Kotick said.

Gold priced in euros, pounds, South African rand, Australia
and New Zealand dollars hit records in February as investors
turned to bullion as a hedge against weakening currencies. Gold
reached a peak of 783.87 euros and 692.66 pounds on Feb. 18.

“Against sterling, gold is making great strides, and
against the euro it is breaking higher out of range, but against
the yen it is holding in a well-defined range,” said Kotick.
“These charts speak volumes: as much about currency perceptions
as the value of gold.”

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