Gold: Strong Rally
December 27th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
We’ve got gold in strong rally right now. It’s still range bound, but keep $845 in mind. That’s the overhead resistance.
The current move is happening on thin, holiday order flows. I find it interesting that some players see the need to take long positions right now; during a low liquidity time to trade. It’s even more interesting if you read Paul Tustain’s recent analysis with December 31, 2007 as a date to watch. Indeed, the media is talking about the weak dollar, but the dollar is well off recent lows. My guess is that this is much more about Sterling and Euro holders who are frightened by those central banks’ recent decision to strap themselves to the mast of the sinking dollar.
Where oh where is all of that paper going to go??? * chuckle *
Let me check my crystal ball:
From a technical perspective, the argument for long is stronger than the argument for short.
That weekly stochastic cross up is probably a good sign for gold longs. Of course, a by-the-book-reading of this is that it’s not significant because it happened with the oscillators in the 70s. The traditional bullish trigger for the slow stochastic is a cross under 20. But why might we not write off this higher band cross?
Look at the MACD. It never turned down. Momentum slowed, but it didn’t cross down.
Next, the weekly range is intact.
Finally, a bullish ascending triangle (higher lows under a significant overhead resistance) appears to be gearing up for a run at $845.
Alternative explanation: Of course, this could be short interests trying to squeeze prices higher on some low volume sessions in order to short from higher highs. That seems unlikely, though, because of the several green weekly candles in a row giving us a positive slope. Watch the line that describes the positive slope underneath the lows. If red candles start bleeding through to the down side, the support to watch is $773, with a drop dead stop at $765. Under $765, I would stop accumulating until much lower lows were reached.
Note the word accumulating. I’m not trading gold. I actually wish it would go lower so I could buy more. Yes, diversification is critical.
Via: Reuters:
Gold soared to a one-month peak in U.S. trade Wednesday, driven by strong oil prices and a weak dollar, and platinum hit record highs on lingering supply concerns.
Trading volumes were thin, however, with U.K. precious metals markets closed for the post-Christmas Boxing Day and many U.S. traders and investors away, or keeping light positions, due to year-end holidays.
Most-active gold futures for February were up $12 or 1.3 percent to $828.50 an ounce on the COMEX metals division of the New York Mercantile Exchange by 10:55 a.m. EST, for a session high as well as new peak since November 27.
COMEX platinum for January was up $11.70 or 0.8 percent at $1,547.90 an ounce after hitting a record high of
$1,550.
Dealers of precious metals in New York attributed the rally to the run-up in oil due to the escalating Turkish-Kurdish conflict and declining U.S. crude inventories.
The weakness in the dollar was also a supporting factor.
Kevin,
Being a novice to the investing world, could you please explain what a stochastic means? I know how Webster would define it, but I don’t understand the relevance to investing.
Thanks for any help here.
Jake,
I’m inexperienced at trading as well. Look up stochastic on this site: http://investopedia.com
Also, check out their technical analysis tutorial: http://investopedia.com/university/technical/