Breakout alert

11/04/2010 by Philinje.

In the face of re-emerging risk aversion (meaning a strong dollar) and stalling (but strong) stock markets, gold cleared major resistance in the $1140-60 area. Silver came along for the ride.

Odds are shifting toward a major rally this month and possibly next. Next resistance is $1190 then the all-time high at $1227. Again, the near-term projection of $1350 is alive and well.

One very good sign is gold’s strength in the face of risk aversion, meaning it might be re-gaining its old status as a safe haven. One could even surmise that some of gold’s strength this week was due to risk aversion. The Euro is still wallowing around near its recent lows as the Greece story continues. But the dollar has been struggling to get much past 82 and finally caved in to under 81 on Friday.

General equities are still pushing upward in the kind of inexplicable rally that so often occurs. The sane point of view is that the rally since last March is overdone - way overdone. And yet it continues. It might keep going for a while, so be super cautious about taking a short position. In fact, going short might be the equivalent of insane behavior in this situation.

Overall, reflation is alive and well. There was trepidation this week but basically risk appetite is still the dominant sentiment. Next week should be interesting. I am anticipating a slight pullback in gold and then some strong moves up toward end of week. That could be it for this bull run, or the precursor to some big fireworks.

The commercial short position in the Comex is back at all-time highs, meaning the same big banks who have been shorting gold and silver are still fighting the bulls tooth and nail. If gold can break through its all-time high of $1227, there could be an explosion due to short covering. For example, we might see a steep incline toward $1250 and then bam! another $100 in one day. I’m not saying that will definitely happen. It’s just an example of how short covering could play out, and the levels mentioned are realistic for a variety of technical reasons.

To grab the peak is something even dedicated pros often can’t do. So there is no point in assuming you can get out at the right moment. I still feel there will be some decline after this peak, which could be at $1190, $1230 $1250, $1300, $1350 or $1400, so depending on how closely you pay attention to the daily movements, you might want to spread out some selling around those levels. At this moment, the only level that looks relatively assured is $1190. After that, who knows.

Good luck. I’ll be reporting after the fact, as usual, so be prepared to make some decisions in the coming weeks.

Posted in Gold | Print | No Comments »