Gold correction on the horizon
While gold prices continue to make record highs on fears of inflation and high oil prices, the buying may be a bit exaggerated. As we saw in 2006 when oil prices were fueled by speculation when the price went from the $70s to $50 by May 2007, the gold market may be lead by speculation more than anything.
Certainly these are trying times and the US credit crunch doesn’t appear to be helping any. Gold prices now sit at $940, up from $790 in December and $650 last September. I’m starting to thing that gold appears overbought and might be in its own mini-bubble. While the future looks grim for the value of the US Dollar, it seems like the gold surge is too much too fast to be sustained.
A quick look at the price of gold shows that the movement is following a very quick trend, but recently the price looks like a triple top. RSI has consistently fallen since gold started making new highs, indication that the strength in gold might be coming to a halt. Triple divergence is even more suggestive than the normal two peak divergence. A retouch of the newest trend should be in the future, possibly with a movement to $900 if the trend breaks.
It is likely that gold won’t get much higher than $1000 where a lot of people have their take profits placed. Resistance will only get stronger from here and a large hedge fund sell off might just send gold plummeting. Right now, gold is neither buy nor sell as this market is hard to call but I think we should start to see a reasonable correction.
