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Analyzing charts provides useful information for both long-term precious metal investors and short-term traders. It is important to look at the charts with a neutral frame of mind without any preconceived notions or opinions to avoid a bias in analysis.
The annotated day chart of GLD, which is a popular ETF and a good proxy for analyzing gold, shows that a triple bottom has formed on the chart.
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Back testing shows that triple bottoms tend to hold more often than not. The line connecting the three recent bottoms is a very strong support for gold. Having said that, even though the subject of this article is about what the chart says, investors should note that the fundamentals for gold are poor at this time. For this reason, there is not as much confidence in the triple bottom at this time as is normally the case.
The flip side is that if the support characterized by the triple bottom is decisively broken, gold can quickly fall to the level of December 2013 where the chart is marked ‘double bottom.’ The support at the level of about $114 to $115 in GLD is again a very strong support. The equivalent in gold is $1190 to $1200. The reason behind this level being a very strong support is the way this double bottom was formed. Near the left bottom, the chart shows an exhaustion gap. A down gap occurs when the high price of the day is lower that the low price of the previous day.
An exhaustion gap occurs after a series of down gaps in a down trend. It is called exhaustion gap because when it occurs even the strong hands are exhausted with the losses and they sell. The virtue of identifying an exhaustion gap is that when all the selling is done, gold stabilizes and then typically moves up. This is exactly what happened after the exhaustion gap in December 2013…Read more at Kitco
