Gold Forecast December 22, 2011, Technical Analysis

Gold markets rose initially on Wednesday, only to fall back down in the end. The cluster of previous support just above the $1,600 level has acted as resistance, and the daily candle has formed a shooting star, a very bearish sign indeed. Because of the shape of the candle and the location, we simply must step back as it looks like the gold market is going to fall gain. A breaking of the lows from Wednesday is actually a sell signal, and should see a move back down to $1,550. However, if the market can manage to break above the top of the Wednesday range, it would be a significant bull signal telling us to buy. We generally don’t like the idea of selling gold, but the move looks like it might just have more gas left in the tank at this point.

The $1,500 level below is certainly a significant support level as it is a large psychologically important round number, and the bulls will certainly step in at that point if the market gets down there. The gold markets have enjoyed a large uptrend over the last 10 years, and these pullbacks do come back from time to time, and the moves have been very brutal if you were long at these points in time. However, over time the bulls were redeemed in the end, and if they held on – they made a fortune.

The market is still a long term buy, but the current price action has us concerned about the health of the market currently. The end of year thin volume will certainly increase the possibility of a breakdown or melt up, but the overall looks just doesn’t have us as bullish as we were just a few weeks ago.

The next year should be bullish for gold in general as the European Central Bank is almost assured to start printing Euros to fund all of the mess over there, and gold will get a little bit of a bid due to this. Also, the US dollar is being devalued over the long run, so it is hard to see how gold ends up lower next year. With all of this in mind, you couldn’t be blamed for simply ignoring this market for a few weeks or even do something we almost never do – sell it for a short-term gain to the downside.