Monday, December 19th, 2011
Is the gold bubble about to burst?
Gold is at a an inflexion point. If you look at the chart below, the gold price is supported by the 50-week moving average and the long-term uptrend. As I’ve said before, the uptrend for gold is powerful and means gold deserves respect.
But at the same time, the chart below shows it has clearly made a lower high. If it falls below the last recent low then it would be in a fresh downtrend.
As I wrote recently, there have been opposing forces at work with gold. On the bull side are fundamentals (ie central banks printing money and global uncertainty) and the long-term uptrend; on the bear side is the fact that gold has become too popular.
When there are opposing forces like this what do you do? Firstly, nothing drastic. You don’t go massively long or short. There’s no harm waiting for more information. If gold enters a downtrend and breaks the support of the long-term trend line and 50-week moving average, then you might peel off some of your position if long; and perhaps initiate or add to your position if short.
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