Gold price technical analysis for Dec 28, 2011

[Sparky]

To find technical low points on price, you look for fresh low prices on days with very high volume trading. Gold had such a day with a price of $1560 on December 15. Technically, this means the price cannot go long term higher until the price returns to that same low price on lighter trading volume, and closes above the low.

Interday today we dropped to $1555 with much lower volume than the $1560 low on December 15. In order to reject lower prices, we would like to see a close today above $1560; this would pave the way for longer term advances. If we finish below $1560 today, it opens the gate for even lower prices. How low?

Looking back, there was a super high-volume low of $1462 on May 5. To me, that's the new rock bottom on price. This price ALMOST got tested on July 1, at $1478 on very light volume. But this was not a definitive test because it didn't make it all the way back down to $1462, so that price may still be open for another test.

Today could provide a clue to that. If we finish above $1560 on today's light volume, it could be a sign that both of those lows have been successfully tested and rejected, and we are set to move up again long term. If we close below $1560 today, it may mean that the $1462 never got properly tested, and we may need to return there again, either later this winter, or perhaps next summer after a winter rally.

[Sparky]

We closed a few dollars below the $1560 yesterday which opened the door for another leg down, as reflected by this morning's early action.

But an interesting test for silver today. The previous untested high-volume low was $26.40 on January 27 of this year. This morning silver took a nosedive to $26.08, but then immediately bounced higher. That's the type of response you like to see when crossing a critical test point. Also take a look at Silver Wheaton (SLW). Plunged to $26.85 this morning, but is now up almost a dollar since then. The gold miner ETF (GDX) showed a similar characteristic, plunging to $49.22, but bouncing sharply more than a dollar. These are nice V-shaped reactions that often accompany turnaround bottoms.

So this morning the established lows were $1522 gold and $26.08 silver. Would like to see this rebound continue, because these prices fulfill all the technical requirements of a successful test. In particular, I'd like to see gold run all the way back above yesterday's $1557 close; that would be a huge signal. If this rebound doesn't hold and we drift back downward at the end of today, then brace yourself for the full test back to $1462 gold and $22.80 silver.

[Sparky]

Update: After a pullback, silver now beautifully making a second thrust upward above yesterday's closing price. Would like to see this move confirmed with gold, which is making a more sluggish crawl upward. Price action over the next several hours might provide a clue as to whether we established a bottom this morning. Would need to hold this upward momentum the rest of the day to be convinced.