By Relmor Demitrius
SPDR Gold Shares (NYSE:GLD) in the last two trading days had climbed almost 3%, to $118.27 (this reflects a spot price equivalent of around $1,182.70 an ounce) at close on Friday. Fears of a European financial meltdown brought on by weakness with their smaller members such as Greece, Spain, and Portugal combined with a falling stock market, drove buyers into gold last week. Even after the GLD closed trading, a late day surge saw spot gold go from around 1,180 dollars an ounce to a near record high of 1,208 dollars an ounce, at the time New York COMEX ceased trading on Friday.
Last month I wrote an article predicting a sizeable breakout in gold to happen around the 20th of May. It seems the gold breakout came early on Greece news, creating fear buying. On my Chart 1, I showed the coming together of two long term trend lines around the 20th of May. As you can see from the circled breakout from early September on Chart 1, that move also had an early breakout, so this should not be surprising, as May 20th was more of a deadline for this move, rather than a prediction on the exact day of its occurrence. A strong qualification of a valid resistance break is that it occurs on high volume. As indicated on Chart 2 this break does indeed have higher than usual volume.
There was strong trading action in shares of gold miners on Thursday, the day the DJIA dropped almost 1,000 points at one point, as almost all stocks were going down 5, 10, 20 percent or more, shares of Yamana Gold (NYSE:AUY) were up 4%, El Dorado Corp (NYSE:EGO) up over 1%, Barrick Gold Corp (NYSE:ABX) was up over 2%, and the Markets Vectors Gold Miners (NYSE:GDX) was up over 1%. The strength in this sector is cleary more than a short term response to gold. Not all shares were being dumped apparently, as safe haven buyers flock to equities in gold, but little else. If the move in gold was thought to be temporary, gold shares may have suffered along with prices in most other sectors. So there are a few indicators this move in gold has some teeth.
Looking at our price channels we can see that 1,260 an ounce is possible before a significant pullback, and longer term 1,380 is in reach before this summer run ends. If the dollar continues to struggle, and some fear over European debt continues, gold could see the double advantage of rising on inflation and on an increase in demand as well. I believe this will be our summer run, and should max out the price in the coming weeks. Look for a long but strong sideways move going into the fall, with lower channel price support from around the 1120 price range. More on that later in the coming weeks ahead.
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No Position Gold Futures/GLD
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- Chart Chart 1
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- Chart 2
