Gold's Rise: Head Fake Or Is It The Real Deal?

The downtrend that has dominated this sector for the last three years has been broken by gold’s sudden and almost vertical rise from its recent lows.

This rise in the price of gold can be attributed to any number of factors, including but not limited to the following:

• A technical reaction of an oversold position
• The continuing demise of a number of the world’s major currencies
• Supply and demand
• Fear as the world is in turmoil
• Geo-political uncertainty
• China’s unquenchable thirst for gold
• An opportunity to invest in an unloved, oversold sector of the market

The question that we all wrestle with is whether or not this is another head fake or is it the real deal?

As the chart shows we have had four similar breakouts in gold prices over the last three years. Each one of these has been greeted with great joy by the perma-gold bulls looking for some relief from the battering that this sector has endured.

This move may well be the real deal, however, gold is technically overbought which suggests that a near term correction is on the cards. The speed and severity of the retracement will give us a clue as to golds strength. If gold can hold above its previous high of around $1180/oz, then that would be a positive indication of better things to come. However, should it fall much further, then we could see yet another test of the previous lows.

Go Gently

********

Disclaimer:  www.gold-prices.biz   makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents our views and replicates trades that we are making but nothing more than that. Always consult your registered adviser to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this letter. Options contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. Past performance is neither a guide nor guarantee of future success.