Originally published by Institutional Advisors on October 4, 2006.

Technical observations of RossClark@shaw.ca.

Gold's rally to $607 last week satisfied the minimum interim upside targeted resistance of $600-$610, but came well short of the $626 that would be needed to confirm a major breakout. The subsequent break of support now requires an update in the analysis.

Over the years, gold has shown a tendency to make 50% to 60% retracements within rising and declining trends. In the early stages of a trend these retracements tend to overlap the previous trading range, but fail to penetrate the midpoint of the prior consolidation. The rally into September 28th retraced 53% of the decline from the September 5th high of $640 and marginally overlapped the July 24th low of $602.

Now that prices have violated the September support we can lower the important upside resistance level from $626 to $588. A close above there would be viewed as a catalyst for a renewed bull market move. In the interim, resistance should be encountered on 50% to 60% retracement rallies of the break from $607.

Examples of resistance

Here is what happens once prices move up through the midpoint of the 'last failed rally'.