Did Gold Just Create a Short-Term Bottom?
Commodities / Gold and Silver 2011 Aug 16, 2011 - 11:40 AM GMTBy: Eric_McWhinnie
On Monday, the Dow (NYSE:DIA), S&P 500 (NYSE:SPY), and oil (NYSE:USO) all continued to rally from previous lows they made the prior week. Gold (NYSE:GDL) broke through $1800 last week, but declined going into the weekend as margins were raised against the yellow metal. On Friday, gold dipped to as low as $1723 before rebounding, which brings us to an important support level for gold.
The chart below details the short-term significance of $1720 for gold. Investors should take notice how gold rebounded strongly when $1720 was approached. The price level of $1720 previously acted as resistance, but now it is acting as support.
The chart listed below also shows another reason to pay attention to the $1720 price level in gold. The chart is listed with Fibonacci price levels at a 25%, 38.2%, 50%, and 61.8% retracement. Fibonacci retracement is a popular technical analysis tool investors may use to help determine the severity of a pullback after a well defined rally. The 50% retracement is technically not a Fibonacci number, but is often included in the analysis. For the rally that took gold to $1815, we will use a base of $1625, where gold built a launch pad to shoot $190 higher.
Once again, the $1720 price level serves as a key target using the 50% retracement level. Yesterday, gold futures gained for the first time in three sessions. Technical analysis alone doesn’t explain the support level of $1720, but it helps to paint a clearer picture. The U.S. Dollar (NYSE:UUP) also gave gold (NYSE:GLD) and silver (NYSE:SLV) a boost on Monday as it sank lower. Although long-term holders of precious metals (NYSE:DBP) are less concerned with the daily and weekly market noise, short-term traders should keep an eye on the $1720 support level. If support there fails, additional support from the 61.8% retracement level can be seen at $1697, which coincides closely with the psychological support of $1700.
Investors looking to hold precious metals in their portfolio may want to consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Hot silver plays include First Majestic Silver (NYSE:AG), Endeavour Silver (AMEX:EXK), and Global X Silver Miners ETF (NYSE:SIL).
For more analysis on our support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.
Disclosure: Long AGQ.
By Eric_McWhinnie
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