The call for a minimum 14% rally in gold from the March bottom has been achieved at $1236, however the optimum 19% target ($1,290) is still within sight. A pause in the gold rally with a pullback into the $1190’s and a further upside extension in prices into early June is likely.
This phase of the gold rally is now seven weeks into an anticipated nine to eleven week move and the sidelined bulls are back in force. The daily sentiment numbers are at extremes (Gold at 98% and Silver at 97% according to www.trade-futures.com) however the weekly numbers (www.sentimentrader.com) are still well shy of levels seen at the tops in 2006, 2008 and 2009. Expect increasing volatility.
Wednesday produced an RSI(14) reading of 76. This is excessive enough to cause a quick cleanout to the downside, but as stated on May 7th - “Previous April-May rallies have concluded with daily RSI(14) readings of 79 to 85 or upside Exhaustion Alerts caused by a solid week of urgency in buying pressure.”
“Targets based upon the 1980 to 2007 consolidation continue to point to levels above $2,000.”
(Click on images to enlarge)
Mid-March bottoms in gold produce rallies of 14% to 36%.
A 14-day moving average of the lows should provide support on pullbacks.
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