Gold: Beware the Bucking Bull
Source: Seeking Alpha, Fat Prophets (10/19/08)
We remain committed long term bulls on gold. The stimulus being thrown at the global economy is unprecedented and has not yet even begun to work its way through the financial system.
The short term outlook for gold appeared positive while the yellow metal was trading above US$820 an ounce. However, in New York trading on Thursday, gold was hit with a wave of short term selling...
From a purely technical perspective, the break below US$820 indicates the likelihood of near term weakness. It shifts the focus back to the US$735/US$734 support region and away from the potential for a push above $931.84.
The $820 to $860 region now becomes resistance. While prices remain below this region, the risk is that prices will break below $734 and retreat toward the $650/$640 region...
However, such a move is only a possibility, and should prices once again move into the US$820/US$860 region, the near term outlook would improve again.
We remain committed long term bulls on gold. The stimulus being thrown at the global economy is unprecedented and has not yet even begun to work its way through the financial system. The Fed's program to purchase commercial paper does not get underway until 27 October. The transmission of this money through the system will take some time...
But in the short term gold can do anything, as we witnessed recently when the yellow metal plummeted below US$750, only to reverse that move a few weeks later with an $80 single surge to the upside.
So Members riding the bull should prepare for more short term volatility. Any cowboy will tell you that riding the bull for the full 8 seconds is a very difficult task. This bull market will be no different, but if we’re prepared, we can tighten our grip.