Gold Technical Update

Prev: Gold and Silver Looking to Resume Uptrend after Brief Pause (8/2)

Gold (XAU/USD)
gold 1H Chart 08092011
Bearish Divergence:
- Gold has been unstoppable as the uncertainty among fiat currencies and risk aversion prompted safety demand, and with the USD hurting, JPY and CHF both weakened slightly by intervention, gold continues to soar as it does not have any prospect of intervention at all.
- There is a bearish divergence, but that has not been a good signal for reversal. Or rather, the consolidation after the divergences have been insignificant.
- However aside from the bearish divergence, there is a couple other signs that gold might need a break before further rally.
- The sharp slide currently is parabolic and has a chance of being a blow-off rally. We might not see the final blow-off, but in the short to medium term, a correction is not inconceivable.
- Also, the market has completed a 9-wave rally since the 1478.10 low. This is the structure of a motive wave when there is an extension in one of the smaller waves. By no means however does it mean we can't have further extension, but it does look like an extended 5th, with a blow-off in the 5th.
- A bearish scenario in the very short-term can materialize if the market falls below the 1731.45 pivot.
- However, a bearish scenario might be contained above 1680, so 1680 should be the maximum target for a strong break and close below 1730.
Expansion Target:
- Gold will be sensitive to risk sentiment. A bit of risk appetite coming back can help stall gold's historic rally.
- However, the market is prone to buy on dips at the moment, so shorting gold requires a lot of "agility"
- The bullish targets for gold can be projected using a fibonacci expansion tool.
- We have already hit range breakout target at 1670 and a wave equality projection near 1725. Now, 150% expansion can be the next target near 1860.
gold 8/9/2011 Daily Chart

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Fan Yang CMT
Chief Technical Strategist