In a short post yesterday, I shared Richard Russell’s (Dow Theory Letters) take on whether one should buy gold when the metal is obviously extremely overbought.
The up-trend in gold is off course well established with the price having closed higher at year end for eight consecutive years. And unless bullion drops to below $979.85, 2009 will make it nine in a row. While not doubting the primary trend, one should be cognizant of gold (as measured by the SPDR Gold Trust ETF, GLD) having gone up for 16 of the last 18 days. Also, the price has now increased for nine consecutive days, matching its longest nine-day rally (October/November 2006) since inception in November 2004.
While it is possible that traders will try and shoot for the 1,200 number before knocking off for Thanksgiving, I will stick to my strategy of buying a notoriously volatile asset like gold on downward reactions or consolidations, which are bound to happen from time to time – even in a well-defined bull market. But as John Murphy (StockCharts.com) said: “Such sharp moves are a challenge for analysis.”
