Commodities - Gold
We last looked at London Spot Gold (GOLDS) two months ago. At the time Gold was hovering around $1000 and it was unclear as to which direction the yellow metal would move.
We suggested that only a break above $1032.7 (the March 2008 high) anytime soon would turn the chart bullish. On the 6th of October, Gold surged to end the session at $1042.1. That was the breakout and Gold has not looked back since and now stands closer to $1200.
Sentiment is turning extremely bullish and as contrarians, that is a negative. That said, as central banks continue to buy up the metal (Russia is the latest to do so), contrarians should step to the side for the time being.
So the big question is how far can gold go?
One of the simplest methods for deriving targets in technical analysis is the ďmeasured moveĒ. This technique is particularly useful when an instrument is breaking out to new all time highs and there are no resistance levels to work with.
Quite simply, the measured move involves determining the depth of a range and adding it to the point of the breakout. In the case of Gold, the depth of the two year range was $300, adding that to the breakout point across $1000, provides a target to the $1300 level.
So the best advice for those who want in is to buy on pull-backs but take profits around the $1300 level. On reaching $1300 sentiment is likely to have reached such stratospheric levels that the correction when it happens will be spectacular, so stops should be strict.
Commodities are covered daily in the Daily Commodity Hotline, with analysis from Cornelia Dichio in the UK. Commodity ETFs from the US market are covered each week in the ETF Review by Tarquin Coe.