(Kitco News) – Mon Oct 17—Comex December gold futures are consolidating near unchanged levels as the market edges toward its highest level since Sept. 23. While gold has been coiling modestly higher over the past several weeks in a triangle-like type of pattern, one gold technician pointed to Monday’s action as a good risk/reward buying opportunity.
Dave Toth, director of technical research at R.J. O’Brien, said” it’s been a grinder over the past three weeks in terms of its counter to the September plunge.” However, Toth said the short and intermediate term technical trends were up for gold, as long as the market continues to hold above the Oct. 13 $1,654.30 low in the December gold futures contract.
“You could put on some cautious longs right here, right now,” Toth said while December gold was trading around $1,684. He pointed to the $1,654.30 level as an objective stop-loss point for a long trade. “If the market falls below $1,654.30 you don’t want to be long,” he warned.
While Toth called the short and intermediate term trends up for gold, he said the $64,000 question was the Aug-Sept sell-off “another bull market correction or the start of a major reversal lower?” Toth said his bias was that it was another major bull market correction.
In the bulls favor, Toth pointed to Bullish Consensus data as a positive factor for the gold market. Bullish Consensus is a sentiment tool, which is used in a contrarian fashion. He noted that the Bullish Consensus number “eroded to a low at 65% in the first week of October. In this secular bull trend, we’ve seen recent [similar] numbers that have accompanied major bull market corrections, such as 63% in January 2011 and 61% in July 2010,” Toth explained.
How does he interpret this data? “You’ve got reinforcing evidence from sentiment figures that are consistent with other recent bull market correction lows,” he said.
Overall, Toth believes the odds are good that the secular bull trend for gold is still intact and that the Sept. 25 pullback to $1,535 “completed the correction from the August high.”
But, the key, Toth concluded, is that December gold needs to hold above $1,654 short-term.
December silver futures are also consolidating in a sideways fashion, but the pattern is not as upwardly sloped as the gold’s markets recent coiling action. That simply reveals a lack of strong momentum from the bulls near term in the silver market. Key short-term resistance ceilings to monitor in silver are the $33.10/$33.60 zone. Gains through that ceiling would signify a bullish breakout if that were to occur. On the downside, major near term support lies at $28.40 an ounce. A settlement below that floor would signal a downside breakout from the recent sideways action, if that were to unfold.
Kitco News-October 17, 2011