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Gold has a following that never gives up nor surrenders. This has something to do with the feelings of safety and security that it has always created for those who owned it historically, and that it still creates for investors and savers holding it today. Determining where the price of gold will go in the future can seem as difficult as separating a gold fan from his or her precious metals. In reality, it does not have to be though, thanks to technical analysis. Below are seven technical analysis indicators that each give you some price predictions or price points to watch for the future direction of the yellow metal. Taking them independently, they give you some idea of where gold prices will head. Using several of them together will give you much better confidence and clarity on the future price direction of this most desired of precious metals throughout history.
Technical Indicator #1: Breakout Behavior
This technical indicator concentrates on the points where a zone of previously potent resistance or support exists. When gold manages to convincingly penetrate this type of area, then typically it pushes sharply forward through, often with high volume. Gold has recently reached such an inflection point in the six year lowest price of $1,044, which represents the low in gold prices going back to February 5, 2010. So far, gold has managed to bounce off of this level with a fairly good rebound. Should it break below it in the coming sessions and weeks, then gold will quite likely push significantly below this sub $1,050 price.
Technical Indicator #2: Resistance and Support Levels
There are certain levels with gold that act as minor or major points of resistance and support for the yellow metal. Support helps to keep the price from falling, while resistance acts as a buffer that gold prices resist rising above in their daily activities. At time of writing, gold has resistance points in the $1,074 to $1,088 range, with resistance 2 being the November 25th high of $1,080.70, resistance 3 being the November 20th high of $1,087.60, and resistance 4 being the November 16th high of $1,098.
Gold's support levels are found at time of writing at $1,052 a swing target level and at $1,058.40 an hourly support level. Below that lies the critical support levels found at the almost six year low price of gold at $1,044.
Technical Indicator #3: Moving Averages
There are four moving averages that tend to support or provide resistance to gold prices technically. These are the 21 Daily Moving Average, the 55 DMA, the 100 DMA, and the 200 DMA. These moving average points are widely and well known, which reinforces their importance, as everyone is constantly watching them and they become more powerful as a self-fulfilling prophecy. Presently, the moving averages for gold are found at:
- 21 DMA: $1,081
- 55 DMA: $1,123
- 100 DMA: $1,119
- 200 DMA: $1,153
With gold prices in the $1,060's at time of writing, the only one of these averages that is currently in play is the 21 Daily Moving Average of $1,081. This $1,081 is acting as a cap on and resistance to the price of gold rising much above $1,080-$1,090. Should gold manage to break through that zone to the top, then the 21 DMA will act as support to keep it from moving back below the price. The next major moving average resistance would then be the 100 DMA to 55 DMA range of from $1,119 to $1,123. As there are two moving averages nearly on top of one another there, that resistance point would be much stronger than the only single 21 DMA found at $1,081. So long as the $1,081 does cap the upside on gold price action though, the bears will continue to attack the 2010 lows mentioned previously, currently supporting gold prices at $1,044 per ounce.
Technical Indicator #4: Trending Direction
Trending is the phenomenon that explains why the trajectory of gold's price generally moves in one direction or the other for a lengthy time frame. Technically, gold is caught in the middle of a trending direction downward. Bears have the near term solid advantage technically, as gold prices remain trapped in a downtrend that is six weeks old, per daily bar charts of gold. All else being equal, gold will continue trending in this downward direction so long as bears continue to be strong in both near-term and longer-term technical direction and control over the gold market.
Technical Indicator #5: Decisive Crossovers of 12 Month Moving Averages
Where longer term price movements of gold are concerned, there are several good technical analysis indicators to watch. The first of these is the 12 month moving average. When gold decisively crosses over its 12 month moving averages, then it tends to continue powerfully on in that same direction. Today the 365 day moving average of gold is at $1,192 per ounce, so this number is not in play at the present time.
Technical Indicator #6: DSI Daily Sentiment Index
The final two technical indicators are shown on the chart below. The first of these is the contrarian Daily Sentiment Index. It is shown in red on the chart. The Daily Sentiment Index displays the percentage of futures market traders who are bullish on the market. The current reading of around 5% represents an extremely low percentage. In the last two years, whenever this number has fallen near this critical 5% line, the price of gold sharply rebounds. Why this indicator works so reliably has something to do with markets' psychology of loving to confound as many investors as possible as often as they can. When the number of bullish traders are this low, expect the majority to be wrong.
Technical Indicator #7: Elliot Wave Principle
The interesting and often shockingly accurate technical indicator of the Elliot Wave Principle was invented by Ralph Nelson Elliott. He discovered the fact that movements of stock markets and other markets like gold might be successfully forecast if you watched and identified a recurring pattern of waves. His theories argue that markets go up in five waves and down in three waves. Per the chart above showing the various Elliot Waves for gold prices, Wave 4 peaked at just below $1,200 per ounce back in August 2015. Wave 5 down is next predicted to reach $1,050 per ounce in the near future. Seeing as this is imminent to occur, a follower of the Elliot Wave Theory would conclude that gold prices will soon hit and then bounce back up in their next wave from the $1,050 area on their move back up.
Using these Technical Indicators in Concert
As we mentioned at the beginning of this post, when you are able to combine several of these technical indicators and analyses together, then your certainty on price direction and targets becomes much more secure. If you take this Elliot Wave Theory wave prediction along with technical indicator #6 about the Daily Sentiment Index, then you may draw the very powerful conclusion that a sharp bounce in gold is in the cards. When you combine these two with the technical indicator #2 for support levels and indicator #1 for breakout behavior levels showing strong support at the nearly 6 year low for gold at $1,044, then you may reasonably concur that gold has reached both a significant target and a substantial support level in the $1,044 to $1,050 price range. This would indicate that gold prices should rebound higher once they reach these critical levels of target and support. If gold does manage to break convincingly through those levels and close below them, it could be a long way down till the next levels of support come into play.