Gold - Major Breakout Imminent

The rising trendline on the weekly $XAU chart below (courtesy Bigcharts.com) has ten points of contact. It is therefore highly significant

From the high point of 171.71 in the week May 7th 2006, three descending fan lines can be drawn in. Slowly, but surely, the price has been trending towards the apex of a triangle which has been in the making for over a year.

Will it break up or down? That the most likely direction of the break will be UP, flows from the following analysis:

As at June 16th, the buy signal on the following 3% X 3 box reversal chart - which manifested on February 23rd 2007, remains intact. (Courtesywww.stockcharts.com)

The target for gold - based on the horizontal count technique - is $750 an ounce (short term) and $1,400 an ounce (longer term)

The weekly goldollar index chart (derived by multiplying the gold price by the US$ Index) is still climbing its rising trendline - with the context of a US$ Index that appears to have bottomed (chart courtesy decisonpoint.com)

If the gold price breaks up in context of a US Dollar which does not break down, then the gold price will finally break free of the spurious shackles that it is an alternate currency to the United States Dollar. Gold is not now, never was and never will be a "currency". Yes, Gold is a store of value. Yes, Gold may one day again be a medium of exchange for Balance Sheet (as opposed to P&L) transaction purposes. Above all, gold is a commodity. In context of my previous article on Gold Eagle - entitled Gold's Hidden Glitter - I am able to argue (I believe fairly convincingly) that gold is almost priceless in its value to humanity. I am able to argue that gold became the world's preferred medium of exchange precisely because it has this inherent value.

Coming back down to Earth

A 'straw in the wind' is the non confirmation on the daily $XAU chart, which shows falling bottoms on the price chart and rising bottoms on the PMO chart over the past two weeks.

Note also how the distance between 20,50 and 200 MA's on the price chart have been flattening out relative to one another as the indecision period draws to a close and as the coiled spring winds ever tighter.

The buy signal on the Commodities Index below is unambiguous, and the reverse head and shoulders formation is clear to see. A target level of 340 to 350 seems likely. If gold is indeed a commodity, it will break up to follow the other commodities.

The 3% X 3 Box reversal chart of the $XAU below shows a significant consolidation and, should the price break up, a target (based on horizontal count technique) of 180 and a target (based on vertical count technique) of 200 may be anticipated i.e. a 28% to 42% rise may be expected from these levels.

Summary

Gold shares prices have been consolidating since May 2006. They are now approaching the apex of a triangle in context of a bullish non-confirmation between the price chart and the oscillator chart.

Against the background of a clear buy signal in the Commodities Index chart and a clear buy signal on the P&F chart of the gold price that is still intact, the probabilities favour an upside break of the $XAU.

Should this break manifest - increasingly probable over the coming days and/or weeks - the up-move in the $XAU is likely to be explosive; around 28% - 42% move before the move is exhausted.

This move will likely occur within the context of a measured move target for the gold price itself to $750 an ounce in the short term, and $1,400 an ounce in the longer term.

Brian Bloom
www.beyondneanderthal.com

Australia, June 19th 2007

Since 1987, when Brian Bloom became involved in the Venture Capital Industry, he has been constantly on the lookout for alternative energy technologies to replace fossil fuels. He has recently completed the manuscript of a novel entitled Beyond Neanderthal which he is targeting to publish within six to nine months.