Shorter Term Outlook for Gold
Source: Seeking Alpha (9/17/07)
The general market and gold stocks have been behaving very well in anticipation of the next week’s Fed cut. We expect that after the coming cut, there will be a sell-on-the-news reaction on the market, including the gold stocks.
The technical picture supports this point of view as gold stocks are short term overbought. Another worrisome factor is the almost solidly bullish consensus on gold and bearish consensus on the US dollar among the gold bugs and even on the Main Street. In addition, much of the gold’s rise has been attributed to the weaker dollar – and this has rarely produced a sustainable breakout. In fact the gold price in most other major currencies has been rather weak.
As a result, the risk/reward ratio to the upside looks poor and although further gains are possible, downside risks are more significant. Therefore, we are waiting for a pullback before making a decision to add to positions.