Technical analyst Clive Maund outlines why he believes the correction in gold and precious metals stocks is coming to an end.
It now looks like gold’s correction is done and its intermediate base pattern is completing. If so, then we are at an excellent entry point for many better precious metals (PM) stocks, which have been savagely beaten down over the past several months—a necessary correction following their outsized run-up earlier in the year.
On its one-year chart, we can see that gold’s corrective action from early July has brought it all the way back to its steadily rising 200-day moving average, a classic buy spot, where a potential intermediate base has formed. This corrective action has more than completely unwound the earlier overbought condition, and it may well be that the price is bottoming at the lower boundary of the large parallel uptrend channel shown, which is what various factors suggest.
These factors are behind the major uptrend still in force, as symbolized by the rising 200-day moving average already alluded to: the bullish alignment of moving averages, the price being at the lower boundary of the prospective channel shown, the earlier overbought condition having unwound and, finally, the dollar looking like it is breaking down from its uptrend of the past month, which we will look at later.
The seven-year chart for gold shows its new bull market in the context of the preceding bear market from the 2011 highs. This new bull market ran into trouble at the first resistance level shown, but after the recent correction it should now gather itself to take out this resistance on the next upleg, and target the next resistance level in the $1,520–1,550 zone. Needless to say, an advance to this objective will result in PM stocks, which have been severely beaten back on …read more