Friday, March 9, 2012

A week later... and it doesn't look like we've crashed

As I write on this Friday, we're trading 1710. Following an in-line employment report this morning gold began selling off. We dropped from near 1700 all the way down to 1677, which, not coincidentally is approximately the 200 day moving average. The Euro was getting crushed, and remained depressed while gold rallied 37 dollars to its high. What can we take from the last week?

While we settled below the 200 DMA on Wednesday, it appears that gold is poised to hold these levels. Following our first medium sized 2 day correction of the year in the stock market, we are seeing that American markets are by and large holding their ground. Unlike the last time we had 100+ sell-offs in a day, gold has not spun out of control to the downside. The bottom line is, we are seeing real buying on the dips.

I still see the story as rather unchanged. The sentiment became correctly bearish as gold drifted higher on its way up to 1800 but stalled and showed no ability to get through. I think we will look to go back up to 1800 in the next few weeks, as for now it seems the likely next test will be on the upside, as it appears it failed to break down here. The never say anything pundits will continue to warn that we are "due for a pullback". They remind me of the people who say you should quit while your ahead in a game where you clearly have a winning edge. The trend in gold and equities is in tact to the upside. Given these underpinnings, the case for 1800 gold is more compelling than the arguments for 1600.

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