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Gold: So what else is new?

Richard Russell snippet
Dow Theory Letters
Oct 12, 2010

October 11, 2010 -- Gold is making the headlines, so let's start with gold. The chart below shows gold rising in a remarkable trend. Gold is overextended and overbought -- so what else is new?

Everybody knows that, and what everybody knows in this business is usually worthless. But let's say, for a change, that everybody is right about gold being ready to correct.

Gold could decline to the 1300 level, just above the bullish trendline on the chart, and still be in a bullish trend. The first real support for gold on the downside, as I see it, comes in around 1250. Gold hits the trendline at about 1300, so let's say that as long as gold holds at 1300 or better, it is bullish.

Here's another chart of our favorite metal, and you can see via RSI that gold is indeed overbought. But this is one super-powerful bull market, and so far, the gold bull isn't giving the bears a snort. So I sit with my gold position and wait for the "dollar-bugs" to be right. Would you rather sit with dollars or gold?

It's almost a given that the Fed will go for QE2 at the next FOMC. This is supposed to flood the markets with more money, and at the same time stocks and gold are supposed to surge. Wall Street strategy tells us to buy the rumor and sell the news. My thinking is that with the dollar oversold, the dollar may rally "unexpectedly" on the news of QE2, and that will put pressure on gold.


Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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