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Over the last week (see chart below) we have seen the price of gold reach new record highs of $1,200 and plummet to below the depths of $1,100. The root cause of such volatility can be pinned to the rising value of the Dollar.
“It’s quite a conundrum for investors looking to use gold as a hedge. U.S. GDP was just reported lower than expected, which means the fed’s punch bowl is more likely to stay around. Yet gold is falling. Buy on dips?”Clusterstock
At $1085 for the February contract, the 50 percent retracement of the move from about $950 in August 2009 to the highs above $1,200. I think we could even see another $20 to $50 lower from there, until the market starts to form a base. I think the market will then likely consolidate for a while, before moving higher next year. It could be a bumpy ride, but I strongly feel gold will continue to trend higher in 2010.
Tuesday extended this week’s decline below the 25% retracement level of the 2008-2009- rally crossing at 1099.90. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that additional weakness is possible near-term. If February extends this month’s decline, the 38% retracement level of this year’s rally crossing at 1032.60 is the next downside target. Closes above the 20-day moving average crossing at 1148.60 are needed to confirm that a short-term low has been posted.
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