India’s 200 Tonne Gold Purchase Doesn’t Dilute Need for Consolidation
Gold bugs and precious metals investors alike were happy to see the sale of 200 tonnes of IMF gold to India. Though investors around the world may be buying gold, we still need to see a consolidation before gold moves higher once again.
$1086 per ounce
Though I’m not one to question the credentials of gold in this inflationary environment, prudent investors do need to take a careful look at gold’s quick ascent. After breaking through $1000, gold was well positioned for a momentum move higher, but before we get carried away it may be best that gold takes another dive to $1020.
Examining the Charts
Gold has entered a relatively healthy uptrend after slamming through $1000 per ounce. However, despite a healthy trend and an inflationary environment, this top performer is going to need a breather. As you can see in the chart below, gold has continued a picture perfect trend. However, at each touch to the upper boundary, gold strikes just above an RSI of 70 and moves lower. Now with three clear touches, the RSI is diverging from the price as the RSI stagnates but gold moves higher. This is a clear call for some consolidation.
Where Gold Will Go
The gap at $1030 will prove to be a very nice temporary support level for gold in the near term, but should the divergence continue, gold might have to dip all the way back to $1000 before trudging forward. Also, today’s lack of direction indicates that we could also see a bearish candlestick pattern, the evening doji star, which could be the kiss of death for the most recent rally. If you’re a gambling man, you’re selling here, picking up $50 on the trade to $1030 and re-entering after the RSI falls to a level more consistent with propping up today’s values. I’d put the RSI level at just above 50.
