Wednesday, August 10, 2011

Gold Rally Nearing Exhaustion?


As of this morning, spot gold was trading at $1752.20, down nearly $30 from its new high at 1781.50. This morning marked the second consecutive BIG up-gap (higher) open after the SPDR Gold Shares (GLD) challenged its upper channel resistance line at 162.50 (discussed in last Friday's 8/05, 3 PM chart posting). 

This has the "right look" of a parabolic, blow-off type of price move. Usually the first up-gap represents the breakaway (initiation) portion of the blow-off, while the second up-gap represents the continuation of the center thrust of the blow-off price move. After the extension of the upmove beyond the second up-gap open, things typically can get a bit tricky for the holders of long positions, especially in the absence of additional bullish catalysts to perpertuate the upmove (in corn or soybeans, for instance, new weather reports that project continued hot temps, and draught conditions).

Barring additional bullish perceptions based on headlines, events, etc., the inflated, very crowded long position starts to come in, and if it presses into the second gap area, could trigger long liquidation by the folks who were late to the party.

So far today the SPDR Gold Shares (GLD) has come in a bit further, which has completely closed this morning's up-gap (167.81- 170.15). Now it will be very interesting to see how the GLD behaves heading into the FOMC statement, and then how it closes. If it closes beneath 167.80, then my work will register initial near-term signals that the upmove is exhausted for the time being. 




No comments:

Post a Comment

Follow Us