(OroyFinanzas.com) – While gold did not become anywhere near as overbought as silver on its mid-month run-up, the odds favour a short-term correction from here. There are several factors that taken together make this likely. Looking at the 6-month chart we can see the strong advance in the middle of the month, comprised of 3 white candles, but following this the advance has slowed right down, and several “doji” candles have formed.

This type of candle frequently signals a reversal, particularly when, as is the case here, other technical factors concur in signalling the likelihood of a downturn. These other factors are that the price has stalled right at the resistance at the highs of much of last month’s trading range, and, coincidentally, right at the resistance at the falling 50-day moving average, both of which increase the likelihood of a short-term pullback.

Otherwise the picture is quite bright, with gold having taken off nicely from support at its long-term trendline, breaking the downtrend in force since December in the process. As already mentioned it is not seriously overbought, so after a short-term reaction, probably back to support in the $420 area, it is likely to pick up again.

The dollar has dipped back into an area of support above its 50-day moving average, from which a short-term bounce back up towards the 85 area is likely, which fit’s the outlook for gold.

Clive Maund

Source: www.clivemaund.com

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