Chart Advisor: Breaking Down Gold

Articles From: Investopedia
Website: Investopedia

By David Rath, CFA, CMT

1/ Gold in Holding Pattern

2/ Gasoline Not Following Oil’s Lead

3/ Wheat Still Searching for Bottom

4/ Sugar Sees Bearish Pattern After Run

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1/ Gold in Holding Pattern

Everyone’s favorite shiny metal is in the process of completing a descending triangle pattern after its second attempt to best its 2020 highs. When the run-up was happening earlier this year, I was concerned with what was a clear bearish RSI divergence. This occurs when higher prices are not matched with higher readings of RSI. By itself, it doesn’t necessarily mean the chart has to reverse, but once price confirmed, it was clear there were better places to allocate money.

Since flirting with all-time highs, gold futures have established multiple points of contact in a clear downtrend. As I write this, price has broken through the 200 day moving average and is headed for another test of a support zone. Gold bugs would certainly like to reclaim that moving average and a positive breakout from this pattern.

2/ Gasoline Not Following Oil’s Lead

Few charts carry as heavy a weight for mainstream America as oil and gasoline futures. Even if not familiar with the chart, everybody can tell you what a local gallon of gas costs. It makes sense that these two charts would be highly correlated, but recently we’ve seen a divergence. Since August 24, oil has broken out to new year-to-date highs while gasoline futures broke their positive trendline and currently sit below the 200 day moving average.

There are a few reasons why this could be the case, but we are more concerned with what is happening than why. Anyone with a gas-powered vehicle is surely rooting for further deterioration of this chart.

3/ Wheat Still Searching for Bottom

The chart for wheat futures represents the perfect example of trading the chart instead of the news. At the beginning of 2022 we saw a blow-off top that coincided with Russia’s invasion Ukraine, of one of the world’s largest exporters of wheat.

After riding a positively-sloped 200 day moving average for a few years, the time spent below it has been challenging. The few attempts to rise and hold above have been quickly rejected by traders. Futures are now sitting on support and looking for a positive catalyst to reverse course.

4/ Sugar Sees Bearish Pattern After Run

One of the best-performing commodities thus far in 2023 has been sugar. A recent development on the weekly futures chart shows that the run might be over. Two consecutive tests of the multi-year highs set in April formed what is known as a Tweezers Top. Longs might be feeling the pinch as thus far the current week has produced a bearish candle to follow up a reversal pattern.

The trend is still a friend of this chart, but the appearance of this reversal pattern might give traders pause before committing any more capital.

Originally posted 28th September 2023

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