Gold is experiencing what in trader slang is known as a "MELTUP". It continues to work higher but on extremely low volume and without much fanfare - very slow and steady.
As a trader, the way we look at this sort of market and interpret the price action is one in which there appears to currently be a lack of willing sellers. In other words, there is not enough overhead offers to absorb the steady bids coming into the market on the heels of the index fund rebalancing which is occurring to start this new year off.
It looks to me like some would-be shorts are sitting back and observing the price action and waiting to see when the index funds are going to be finishing up before they come back in more aggressively. After all, if a bunch of investment money is going to automatically be flowing into a market, irrespective of the fundamentals, why fight it? Just let them bid it up and then move back in when the buyers have balanced their holdings.
The biggest thing that this current rally has going AGAINST it, is the lack of strong volume. It tells me that no one is in a particular rush to buy the metal other than the index funds. The other thing is that the mining shares are struggling to add to their gains today. Some of them have gone into the red. Thirdly, crude oil and the products are both sharply lower along with the Goldman Sachs Commodity Index. If there are any inflationary pressures at work across the general commodity sector, I sure cannot see it based on what I am seeing in the futures markets.
There does appear to be a bit of safe haven buying that is continuing today. Just like in yesterday's session, when the equities were moving lower, both the US Dollar and the Japanese Yen, safe haven currencies these days, moved higher, so too that is continuing right now as I type these comments.
I do not know exactly how high these index funds are going to take the gold price before their buying needs are finished up but they have managed to draw in some fresh buying from other specs and in the process taken out some overhead resistance levels on the chart. These are more easily seen on the 4 hour chart which I am including below.
Note the declining volume as the market "MELTS UP". The resistance zone near $1220- $1225 has been taken out but the next one up near $1242-$1245 remains untested at this point. I am interested in seeing if there will be enough index fund buying next week to set up a test of this level or if the bulk of their buying will be done by the close of trading today.
I would need to see the metal move and stay above that uppermost resistance zone I have noted on the chart to become bullish
Also interesting to observe will be the reaction out of Asia to this upward price push. Gold has effectively gone up $60 from its recent low near $1180. One wonders if this will stymie some physical buying from that corner of the globe as they wait for a retreat in price or if some buyers who had been holding back waiting for lower prices will throw in the towel and come in and commit some funds to replenish inventories that have been drawn down by the strong demand out of Asia.
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