A big driver in markets right now is speculation of more quantitative easing from the Fed. The Treasury market started pricing this in during mid-September. Major stock indices are at record highs (with the notable exception of the Dow Jones Industrial Average). But don’t leave out gold.
The prospect of more stimulus is feared to be a cause of future inflation, a situation that makes gold attractive as a hard asset. Additionally, dollar weakness associated with ongoing supply of the currency from the Fed is good for gold prices.
BUMP AND RUN SET-UP
COMEX gold shows a bump and run set-up on the weekly chart. It goes like this. One, in the context of a downtrend, price rallies past the weekly mean, which continues to decline. Two, price pares gains, dipping modestly back beneath the mean. Three, that downleg attracts buying; price shoots back above the mean, and finally, the mean turns up. That completes the set-up. The idea is to go long and hold the position until the mean turns down.
SOMETHING TO WATCH
The mean hasn’t turned up yet but if gold can hold onto gains, it will in the coming weeks. This prospect is worth considering because upside potential is substantial – chart resistance at 1557.5, based on the bottom of the topping activity from mid-2011 to this March.
Happy trading, everyone.
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