From Craig Cobb at Trade with Precision:
A few facts to consider; The Dow Jones is in a (daily) down trend with the S&P500, NASDAQ and Russell 2000 following suit. With these major US markets in a down trend the globe starts to get a little anxious. When this occurs sometimes we see money move into a market that has an intrinsic value such as the precious metals; the big contender in this category is gold.
From the lofty heights of 2011’s $1,900+ levels gold may seem a bargain right now and you may have been told of the time when you could have purchased gold for a mere $1,125. So is it time to buy gold for the long term I hear you ask? I will break down my view via my analysis of the higher time frame charts and you can make your own mind up.The above chart is the monthly and as you can see it has been in a clear down trend from around 2013 with no substantial upward moves. Instead we have seen a steady run of moves back into the sell zone (the zone between the declining 10 and 20 period moving averages) before more momentum to the down side has pushed price lower. Pretty much as perfect a downtrend as you will see. We haven’t made it to the magic $1,000 mark yet; this is where I would anticipate some support to be found. The weekly chart above remains in a downtrend however the bearish candle from two weeks ago would have been the area I would expect to see the continuation of selling to come from, it didn’t and now we see a break of $1,100 to the upside. Clearly the 50 EMA has been an area where a bigger retracement has seen selling pressure. We are almost at the 50 EMA and the $1,155 old support level which may act as resistance this time round and is certainly a level I am watching.
There is some divergence that has crept into the MACD and RSI on the most recent lows. This is bullish divergence suggesting that perhaps there may be some momentum running out of this down trend. Food for thought once again but still not enough for me to be crying out that I am a gold buying monster!
The daily chart above is where the bulls start to come in strong. There is a clear up trend, convergence of indicators, MA’s are in the correct order and we have broken a resistance level of $1,110. It is very clear that the level I spoke of on the weekly $1,155 is above current price but there is still room for profit to the upside should timing be right and the opportunity arise.
I wish to conclude by stipulating my plan on both the short and long term basis with gold. Short term I will be looking to the intraday time frames for long trades while being aware of the $1,155 level ahead. I will likely take most, if not all profit before that level to be safe. Longer term it is the $1,155 level that holds the cards currently since this is the major resistance. So if it breaks $1,155 does that make me a bull on gold long term? No. There are still a few obstacles for gold, some shorter term others longer. For example there is strong resistance at $1,200 and some minor resistance before there. Also I would want to see the weekly at a minimum swing into an uptrend. If the weekly can get itself into an uptrend above $1,200 and the monthly were to close above $1,200 then I would be much more likely to be a longer term bull on gold. Until then I trade, watch and learn!