I must admit that the recent relentless push up in gold is surprising even to me. We have been seeing overbought momentum readings, but that has done little to stem the rise in gold. Just last November, we experienced similar overbought conditions, which were summarily ignored, resulting in much higher prices for gold. From the example of November, I wouldn’t discount the possibility of $1250-$1350 in the next few months. Again, sharp moves like the one you are seeing now are why I will never go below 50% long gold stocks. The biggest gains are made in the shortest period of time.
The dollar is pretty much the mirror image of gold. We are approaching deeply oversold levels not seen since last November. Note the pattern in the dollar back in November: after testing support at 75 several times, the dollar broke decisively down to new all-time lows. Considering we just broke through 75 once again, after a period of testing support at that level, traders should be aware of potential substantial downside here.
The hardest thing for me to do throughout this intermediate term run is hold onto the majority of my positions- which means it’s probably the right play. Of course I have, and will continue to, take profits when the opportunities arise, but the core of my position will remain untouched.
The only thing I’m fairly certain of is that we will see increased volatility in gold prices moving forward. This goes for the downside as well, meaning- I wouldn’t be surprised in the least if we sell off here to $1,000 or so. There is way too much coverage of gold in the mainstream media right now, which makes me uncomfortable. The last time I remember so much media coverage was when gold first cracked $1,000. This euphoric event was met promptly with a 20-30% decline. The markets tend to take away profits at the most inopportune times.
The bottom line is this: if you are a believer in gold, don’t panic out of you positions. There will come a time when gold takes a beating for no apparent reason and the relative strength of the dollar vis a vis other fiat currencies is touted by everyone. This is probably when you want to buy with both hands. Because of the emotions involved in investing, I suspect even the biggest gold bulls will miss out on a majority of the potential gains in this bull market.