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A move to $1,350 or higher in Gold is likely in this second half of 2010, which really isn’t too hard of a prediction to make, but what can we expect from Gold in the immediate short term?  BMR’s technical analyst sees some slight weakness ahead but no threat of a drop below the long-term upsloping channel:

John: For the past 3 weeks Gold (continuous contract) has oscillated, sometimes rather wildly, between a low of $1,218 and a high of $1,262 mainly because of the turmoil in global stock markets and the economic uncertainties in Europe, Asia and North America.  To try and make some sense of this period and a look ahead I have used a weekly chart.

Looking at the chart we see that Gold is still trading in the long-term upsloping channel (blue lines) and is well supported by the SMA(40).  We also can see that for 3 weeks Gold has tried to break through the resistance at $1,260 but to no avail.  The chart also shows a divergence between the RSI and price (mauve lines), indicating that over the past 2 weeks the relative strength of the Gold price has been declining.

Looking at the indicators:

We see that the RSI has dropped below the overbought region but is still heading lower – short-term bearish.

The Slow Stochastics is still high in the overbought area and the %K (black line) is moving to break down across the %D (red line) – short-term bearish.

The ADX trend indicator is still in bullish orientation but the +DI (green line) peaked in early May and is declining with the -DI continuing to decline.  The trend strength indicator ADX (black line) has reached a peak and is about to flatten and then decline.  As I mentioned on one other chart, the +DI tends to peak before the ADX line – the up-trend has started to weaken.

Outlook: Over the immediate term the chart tells me that the Gold price will weaken slightly and probably consolidate between $1,218 and $1,262 until the overbought condition is eradicated.  I believe this will be just short-term weakness because as you can see on the chart, the price does not appear to be in any danger of testing the support (bottom line) of the long-term upsloping channel and the ADX is in a relatively strong up-trend mode.

Once each week on BMR, our technical analyst highlights a junior resource stock (outside the BMR Portfolio) that shows very favorable chart patterns.  Investors/traders of course should perform their own due diligence, as always, and consider fundamental factors as well.  This weekly feature is merely meant to introduce some possible opportunities that readers may wish to investigate.   This morning, John takes a look at Timmins Gold Corporation (TMM, TSX-V) which is actually a good example where fundamentals and TA work well together: 

John: Timmins Gold Corp. (TMM, TSX-V) is at a significant point in its development as a junior gold producer.  In a recent news release, Timmins announced production statistics for the months of April and May from its wholly owned San Francisco open-pit mine in Sonoro, Mexico.  The following is a quote from that news release:

“Commercial production commenced in April, 2010.  During the month of April, a total of 2,666 ounces, and during the month of May, a total of 3,657 ounces, for a total of 6,323 ounces of gold, were poured and delivered to the Johnson Matthey refinery in Salt Lake City, Utah.  The projected sales for June are 3,200 ounces and thereafter sales are projected to increase by 1,000 ounces per month until they stabilize in excess of 9,000 ounces per month in December. A total of 14,364 ounces of gold and 8,669 ounces of silver have been sold for the period from December 1 to the end of May.”

Looking at the chart we see that there was a breakout up through the $1.20 level at the beginning of December, 2009, and since then TMM has traded within a 30 cent horizontal trending channel between $1.20 and $1.50 (two horizontal blue lines).  An inner channel support (blue dotted line) has been drawn and this provides a band of support between $1.20 and $1.25 (right around the 200-day SMA).   It is expected with the present weakness the $1.25 level will be tested in the near future. When a breakout above the $1.50 level occurs, the next target will be $1.80.

Looking at the indicators:

The ADX trend indicator has the +DI and the -DI criss-crossing and the ADX trend strength (black line) low, confirming the trend has been weak during this 7 month consolidation.

The Slow Stochastics %K (black line) crossed over the %D (red line) above the 80% level, and both lines are falling rapidly.  This indicates the present weakness will continue.

The Chaikin Money Flow (CMF) indicator is still bullish (green bars above zero) but are falling toward the zero line.  Buying is getting weaker.

Outlook: At the present time the stock is somewhat weak but news in July confirming that the projected 3,200 ounce sales target for June has been met or exceeded could add a lot of strength to this market.  This would also bring credibility to the future targets as expressed in the June 24 release.  This is a stock with a lot of potential.