GOLD target is to get back above its 50-week MA

GOLD -- 

GLD, having fallen below its 50-week MA, is subtly creeping higher. Its target is to get back above its 50-week MA at 170. It's going to be tough.

Mining Company Valuations

Mining Company Valuations as of October 10, 2011
Source: Canaccord Research

Gold Price Set to Drop into Aggressive Accumulation Zone

On gold's 4-month chart it is now apparent that a bear Pennant has been forming since the panic bottom, with the weak upside volume portending an imminent breakdown and steep drop. A reader pointed out to me during last week that gold's panic lows occurred in thin trading on the Hong Kong market, and for this reason we do not have to factor in the tail of the hammer candlestick when deciding where to draw the boundaries of the Pennant.

The measuring implications of this Pennant call for a drop at least to the vicinity of the intraday lows of the Reversal Hammer and possibly somewhat lower towards the $1520 area - at this point the decline should have completely run its course and we will be looking to buy aggressively.

If we look carefully we can see that a small "bearish engulfing pattern" has formed in gold over the past 2 trading days, implying that breakdown from the Pennant and the expected steep drop that will follow is imminent. A reason why this next drop should end the decline is that gold is already deeply oversold as shown by its MACD indicator, and it will of course be even more so after this impending decline.

Those interested in going long gold investments in the near future should "keep their powder dry" but stand ready to wade in big time if gold drops into the bright green "aggressive accumulation zone" shown on our chart.

Gold Price Set to Drop into Aggressive Accumulation Zone

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