Gold Shows Signs of Life

Yesterday, I published a brief post entitled “Gold is Dead” in which I suggested that gold ($GC_F $GLD) was likely getting ready to make a large move and option straddles were beginning to look fairly attractive – this morning gold fell $25 and has since recovered to regain nearly all of its morning losses:

Click to enlarge

Resistance at 1660 now comes back into focus with previous support and confluence of the 20-day EMA and 200-day SMA just above at 1683:

 

Today’s action was noteworthy for a number of reasons:

  • The early sell-off made a marginal new short term low at 1625.70 but price quickly recovered to print a hammer potential reversal candle on the daily chart.
  • Implied gold volatility ($GVZ) spiked to nearly 20 at the open only to end the day on its lows back below 19.
  • Sentiment has turned extremely bearish in just the past couple of days. In fact, I would venture to say that sentiment is worse than it was in late December when gold fell to the low 1500s – I frankly can’t remember the last time I saw so many negative articles both in the mainstream financial media and the financial blogosphere.
  • Based on anecdotal accounts and price action there have been a substantial number of freshly minted gold bears who have shorted in the past couple of days below the 1650 level. This creates an interesting dynamic should gold manage to climb back above 1660 – this would be particularly interesting if it were to occur on a Friday.
The following article from the FT sums up much of the current market climate for gold:  “For virtually the first time this cycle, buying gold is a contrarian trade.”

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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