Gold Bounce Coming

Against a backdrop of unprecedented stimulus support from central bankers – from New York to Frankfurt to Tokyo – gold bugs have had plenty of ammunition for their fiat-trouncing, metal-buying thesis.

But it hasn’t worked out well for them.

Gold is down nearly 12% in just the last six months. It’s off a full 17% from its 2011 highs.

That said, we’ve witnessed yet another bounce off the all-important $1,550 support level. This price has consistently held gold higher for the past two years. And today’s chart shows that it appears to be holding again… for now.

Here’s the chart of daily gold futures:

See larger image

I see a bullish candlestick pattern that indicates gold will once again reject the $1,550 level. It’s called the Morning Star pattern, circled in the chart above.

This pattern is similar to the Evening Star pattern I wrote about a week or so ago. As an update on that bearish pattern I identified in home builder NVR: prices are down a little more than 4% in the last week.

But back to gold… The 3-day Morning Star pattern is a very bullish signal, especially when it occurs at an important level, like $1,550. Plus, we’re also seeing bullish divergence with the RSI moving higher as gold drifted down to fully test $1,550.

I expect gold to bounce higher from here. Just how high it goes… that depends on the central bankers’ fortitude. Their next show of stimulus-readying should boost the gold bugs’ cause.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.