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Weak euro/dollar, strong dollar Index and weakening gold price. That’s the new relationship and it’s infuriating some gold bugs. As much as many traders think gold should go up the weekly chart of Comex gold suggests there are some serious barriers to a price rise back to $1,750 an ounce or $1,850.
The first dominant feature on the chart is the long term up sloping trading channel. The lower edge of the channel is defined by the long term uptrend line A starting in 2010 April. The gold price has tested this trend line as support level in 2011 December and again in 2012 April. The trading channel is defined by the upper trend line B. This is parallel to the lower trend line A. The two trend lines create an up sloping trend channel.
The sustained downside break below this trading channel is the first move below the lower edge of the channel in more than 16 months.
Technically this is a major and significant change in the trend behavior. It’s bearish. The downside move also changes the role of the lower edge of the trading channel from support to resistance. Any gold price rally will now need to move above the value of this trend line A, which is acting as a resistance level. This caps the current rally around $1,690.
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