Gold Rally Finally Takes a Breather

| October 7, 2010

Gold moved above $1,360 early in the session before reversing and closing moderately lower today. The advance from late July has been rising at an unsustainable rate and has become overextended, so at least a short-term overbought correction is likely at some point soon and today’s reversal may signal the beginning of that pullback.

Power uptrend support at the lower boundary of the rally from July is currently down at $1,295, so prices could retrace to that level without doing any meaningful technical damage to the advance. It is also important to note that the next short-term cycle low (STCL) is likely to development sometime during the next week, so the odds favor another brief retracement similar in temporal character to the previous pauses in August and September.

The financial markets continue to prepare for the anticipated announcement of the next round of quantitative easing from the US Federal Reserve at the beginning of November, and a significant amount of volatility should be expected leading up to and following that next meeting, regardless of the outcome.

Category: Commentary, Market Update


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