Gold Update

In September, I noted that gold would look very bullish on a break through 1270 looking for a move to 1400 to follow. Well, gold came very close over the past few weeks but has since failed falling back below the important 1350 level (of the 1350 to 1400 range). In looking at a PF model update, there could be some reason for concern with gold but that concern is limited at the moment for one major reason - the contract, using GLD, is sitting on support of a range projection using the GLD. On the chart you can see two blue lines and then two green lines. The blue lines define the previous trading range. A breakout from that range occurred taking the metal past its first projection and towards its second. As it failed to get to the top of the range (around 136), it has since fallen back towards the first projection point at our around 130. As long as this level holds, then a test of the next projection is in the cards as far as I am concerned.

In regards to the rest of the model, lets review the other parts. First, in terms of the momentum A end of the model, it has hit overbought for the first time since November of last year. Following that time period, the metal backtracked to the 20 month MA. If the same repeats this time around, then the supports at 130 will give out and a test of the breakout point, around 122 will come into play. In terms of momentum B, it is not in the same position as a year ago - this implies then that the contract is not fully overbought and thus there is more upside momentum left to push this metal higher. The oscillator below momentum B though is tilting to a breakdown which supports momentum A overbought stance. And the PF model, showcased at the bottom is extended and some selling would do it good to bring it back into line.

So this is how I am playing things. I took a long in gold today in the futures around 1334. This happens to go against my long dollar viewpoint at the moment but I am holding the trade to see if it can trade up to 1350. Any trouble in that area and I will jettison the position. A break by the GLD through 129 and I will probably join the short side of the trade looking for 122. A break above 1350 solidly in futures and I will be looking for the 1400 target to come into play.

Related articles

• Gold fails at $1350 again (forexlive.com)
• Metals Stocks: Gold futures fall as much as $7 on Globex (marketwatch.com)
• PRECIOUS-Factors to watch on October 25 (reuters.com)
• September Momentum Starts to Build (thestreet.com)