Gold’s allure has once again attracted thousands of investors who don’t want to miss out on a 10 year high run in the gold market. This has mainly been driven by interest rates at zero, federal stimulus money injections, and positive industrial demand growth prospects in the future. The fundamental story of why gold should continue to run is clearly there and I don’t think anyone is seriously doubting that. There are some concerns that I see with the speed of the rally and if you need proof of that check out silver this week up 15%. Commodity markets like gold are notorious for doing this, and investors should be weighing the risks of being long gold up here, with the chances of a pullback to buy into.
I believe gold should be bought into on a pullback somewhere in the 1800’s. On the August contract that would be around 1850 to 1860 to me and on December gold around 1875. The technical aspect here is important because although we have run up so fast, the volume behind it has been stellar as well which is a positive for gold bulls. I think it’s a bit overbought in this territory, but that doesn’t change the fact it will likely do one of two things. The first is a continued surge toward 2000 with minor dips here and there, or a more significant correction that gets bought into heavily on the way down eventually coming back toward today’s price of around 1900 on August. Proceed with caution on the long side and for traders who are new to the precious metal, options might be the better route to take or a smaller size gold futures contract.