Will the Gold Uptrend Continue?

By: Kingsley_Anderson

Two weeks ago, I opined that Gold may be in a position to move higher . Since that time, gold has indeed broken out (see chart below) and looks set to continue climbing-at least for the time being. Current market conditions have helped the commodity. As earning continue to disappoint and the economy shrink, traders have flocked to the precious metal.

Moreover, low interest rates combined with the endless supply of money being pumped into the economy by the U.S. Government leads traders to believe that inflation will result. Based on history, this is not an unrealistic thesis. Therefore, Gold, as the ultimate inflation hedge, is bought by traders and investors.

From a technical perspective, where is gold headed? At this time, the trend is clearly up. Aside from breaking the abovementioned trendline, gold also broke above resistance in the 920 area. The 50 day moving average is also about to cross over the 200 day moving average- an event known by technicians as a “golden cross” because it usually portends a long-term bullish move.

As one can see from the GLD chart above, volume has also been tracking higher, which indicates that the move in Gold is not just a sucker's rally. Also notice that volume on down days has been low, while it has been higher on up days.

A retest of the breakout area or the 200 day moving average is possible. Ensure that proper risk management is utilized. Also be cognizant of what is happening in the equity markets. A move higher in the market may result in money flowing from gold into stocks.

By Kingsley Anderson

http://tradethebreakout.blogspot.com

Kingsley Anderson (pseudonym) is a long-time individual trader. When not analyzing stocks, he is an attorney at a large law firm. Prior to entering private practice, he served as a judge advocate in the U.S. Army for five years and continues to serve in the U.S. Army Reserves. Kingsley primarily relies on technical analysis to decipher the markets.
Kingsley's website is Trade The Breakout (http://tradethebreakout.blogspot.com)

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