With all the recent interest in gold, I thought it fitting to address this market. After all, it makes sense that a lot of people would want to get involved in the yellow metal. ...
So far, the strong band of resistance from 1,790-1,800 has kept this market in check. What makes this test a little more interesting is how the market has behaved here as it has stalled out.
On previous tests of this area -- going back to November and February/March of 2011 -- the market sold off a good degree following these failed tests. As a matter of fact, the market sold off both times to the tune of over a $200 decline. This time is different -- so far. And although the market has pulled back, the pullbacks continue to be shallow in nature. The market is building a cluster of closes just under this resistance area.
In effect, the market is setting the stage for either a powerful move higher through resistance, a move I think could run a few hundred dollars to the upside, or the rally is coming to an end, in which case it is only a matter of time before this market sees a pretty nasty drop once everyone starts to liquidate. The fact is we just don't know right now. That makes sitting on the sidelines a great choice.
In effect, the market is setting the stage for either a powerful move higher through resistance, a move I think could run a few hundred dollars to the upside, or the rally is coming to an end, in which case it is only a matter of time before this market sees a pretty nasty drop once everyone starts to liquidate. The fact is we just don't know right now. That makes sitting on the sidelines a great choice.
I still favor the upside because the longer-term trend is up. Volatility in gold options has come in from recent levels, and for those who feel we are going to see a big run either way in this market, buying options seems like a much better idea than it did a few weeks ago. Patience is key. Wait out the market.
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