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Gold: Technical Analysis Points to January Trading Bottom


Here are three factors that gold investors should be aware of over the coming weeks.

After a Fed-induced rally into October 2012, precious metals lost their luster, trending lower for much of the past three months. This price action has been particularly frustrating for gold bulls, as many thought the previous move higher was set for continuation based on gold technical analysis.

It's amazing to see how sentiment has changed in just a month or two. Now some pundits are wondering if gold will need to take out the 2012 price lows before embarking upon a new leg higher. The metals are clearly soaked with uncertainty here, so an uptick in volatility is likely. Gold followers and investors would be wise to block out the noise and focus on the price action and intermarket corollary indicators (i.e., the US dollar). Of course, this is easier said than done, especially with another round of debt ceiling talks and political posturing lurking around the corner.

My thoughts: January will likely tell the tale. And gold technical analysis and recent cycle analysis seems to confirm this… at least from a trading perspective.

With this in mind, here are three factors that gold investors should be aware of over the coming days/weeks:

1. Gold Technical Analysis and Levels (in terms of (NYSEARCA:GLD))

So what levels should investors be watching now and how will investors know when the sparkle is about to return to gold? Well, the answer to that question may largely depend on GLD's ability to hang in and around the 61.8 Fibonacci retrace level (let's call it $158). Note that this level was briefly touched in December. Additionally, a similar setup occurred at the same Fibonacci retrace level in April 2012 and resulted in a breakdown. With volatility sure to rise, investors may want to give GLD some intraday leash, or possibly apply a closing rule for exiting positions (note that this rule can be applied for re-entry as well). Gold technical analysis highlights lower supports at $155, followed by the 2012 lows.

Should gold pivot higher, upside levels to watch include $164 (December breakdown and early January pivot), the upper channel downtrend line ($167 and falling), followed by $170 and $174. Either way, volatility is likely to pick up, so investors (long and short) would be wise to create a plan and manage risk accordingly.

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No positions in stocks mentioned.

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