Gold has been on the rise over the past few minutes, rising a few dollars to $2,430.
This comes after the market posted big gains yesterday and a series of sharp declines over the past month. These are reasons to be optimistic.
However, the main feature on the daily chart is the double top near $2475.
So, are we hitting a bottom or a double top? Where am I headed?
There are a few things that push me towards the bull camp.
1) The pattern may be a consolidation between $2360 and $2475 and not a double top.
2) The speculative position has been washed away.
Gold has had a rough patch late last week and Monday as global markets took a turn for the worse. I have often maintained that gold improves when things are bad but not when they are really bad. That was the case on Monday as the Nikkei fell 12%, US tech took a beating and the volatility index hit 60.
This has led to a significant increase in spec prices, which reached very high levels in the weekly CFTC report:
I think we will see another drop in gold prices in the CFTC data due later today. This should show that some of the speculative foam has been removed from gold.
The only thing that makes me cautious is the Middle East. The market is still pricing in the possibility of a war between Iran and Israel or wider hostilities, but that seems less likely. It’s always hard to gauge how much geopolitical premium is being priced in, but I still think that premium is higher now, not lower.
Ultimately, price action will be the judge, but with the US heading into a rate-cutting cycle and the economy slowing, there are strong reasons to buy gold on the dip.
This article was written on www.forexlive.com.
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