Will Gold Go Above $1,000 any time soon?

Until a few days ago the news papers were full of excitement that gold will crack the US $1,000 barrier and rocket up to maybe US $1,500 and beyond.

Gold's Double Top may fail if the S&P500 Double top succeeds

The chart opposite is from the BullionVault Web site. It shows Gold vs. the S&P500.

What is interesting to me is the S&P500 has formed a 10 year double top. Chartists look for this pattern and then look for the price to go below the trough in the chart for a very bearish signal.

The price has formed an “M” pattern and then the price has continued below the middle of the “M”. This point is called the breakout and the price is called the confirmation price and chartists tell us it can indicate prices will go much lower.

How far they may go is determined by the distance from the top of the “M” to the bottom of the “M”. In this case for the S&P500 it is approximately 600 points.

So if this pattern does not fail you can expect the S&P500 to have a target of 200.

Yep, that’s right the S&P500 could drop to 200 in the coming weeks or months.

Double Tops are not infallible. But it might be worth planning for the worst and hoping for the best.

Gold is also forming a much shorter term double top according to its price action over the last week. It touched US$1,000 and has now dropped off forming the second top. If the price drops below the low of approximately $750 then according to chart theory it will confirm a double top and if the pattern does not fail the price could end up at around $500.

Now for a little trivia.

I’ve been reading Thomas Bulkowski’s book on Trading Classic Chart Patterns to find out more about the reliability of the double top pattern.

For your information there are several forms of a Double Top. There are the Adam and Adam double top, the Adam and Eve, the Eve and Adam and the Eve and Eve.

Bulkowski describes the Adam and Eve tops as follows,

“If you were a mountaineer climbing the Adam Peak, you might fear toppling off the summit or perhaps hurting yourself if you sat down. On the Eve peak, there would be plenty of room the walk around, maybe even catch a helicopter back to the base 😉  ”

It appears both Gold and the S&P500 have formed an Adam and Adam Double Top over very different time frames. According to Mr Bulkowski this chart pattern fails about 65% of the time. BUT if price closes below the breakout point then the pattern performs quite well. The S&P500 has done so.

Take a look at his description of the Adam and Adam Double Top if you are interested.

If both double tops succeed then Gold will not be the safe haven it was. Maybe the way Gold is used and traded has changed now there are ETFs in Gold. Its price  is much more easily traded and the information highway gives everyone constant updates on what is happening to Gold.

With everyone so bullish on gold you need to be careful. You know all markets are perverse. Gold is no different.

You decide.

One Response to “Will Gold Go Above $1,000 any time soon?”

  1. […] my earlier posts on Gold, “Will Gold Go Above $1,000 any time soon?” and look at the Gold Chart on, “Should You Buy […]

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