The major reflection last week wasn’t that gold topped US$/oz 1800 (and subsequently fell back and is now trading at around 1730) but how fast it went there. Basically, risk asset flight, and one of the worlds last remaining hard currencies. Though, as traders, what is important is where it could go in the future?
Countries are tripping over themselves to provide liquidity, currency intervention (they keep talking about substantial intervention but nothing happens…) and also printing money. The Fed “lowered the interest rates in 2013!” Cheap money and soft currencies looking good for the gold price. if things take a slight turn for the worse (eyeing you, Europe) then it would not be uncalled for to see QE3 as I interpret the last fed announcement as a single toe dipped to test the waters. The effects of QE3 could be very similar to its predecessors and send money anywhere but the dollar while shoring up confidence, and I intend for a future post to address that trade.
Gold has made a head-and-shoulders pattern with the neckline about 1720-1730 since breaking that level and have been very, very reluctant to fall further. Price is also squeezing in against that neckline, which I see as a bullish sign since H&S’s normally create relatively violent breaks. If it breaks 1720, I’d look to be short until 1650 (consolidating trading before the last flag) and either re-enter at 1600 (next similar level) or wait for a quick bounce at 1650 and go in on the swing. However, 1hr-down moving averages are falling and hemming price to the upside, and this could unleash strong buying if the neckline proves more resilient as short-term volatility should spike. I will be looking to go long gold at the upwards break of a 1 hr 24-ema if it happens before a break of the 1720 level.
Just how will be left out for later and also include the QE3 effect speculation.