Long-Term Trends Point to Gold Above $1,000

Daryl Guppy
CNBC
Tuesday, July 7, 2009

The market is alive with chatter about the weakness of the U.S. dollar, the growing demand to settle trade contracts in yuan and fears of developing U.S. inflation. Is this the time to switch from equity investments into gold?

Let’s see whether we’re ready for that golden handshake.

The weekly gold chart has two important features. The first is the series of support and resistance levels. The lowest of these is at $700 and was tested several times in September 2008. The highest of these is at the psychologically important level of $1,000. It was briefly broken in March 2008 and again in January 2009.

Rallies have moved towards this level on several occasions, but none have been strong enough to seriously break above $1,000. It remains an apparently elusive target. However, once this type of level is breached, it can lead to a very fast rally.

The second feature is the long-term trend line starting in mid-2005. The placement of this trend line presents a problem. The trend line shown on the chart uses the majority of touch points that developed in 2005, 2006 and 2007. It excludes the cluster of price dips below the line in 2008. These dips do not invalidate the trend line, but they do confirm we need to use the line with caution.

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