The last time we wrote on Gold was on 9 – Oct where we talked about the MCX GOLD Indicator. And how local Gold could have cues for international prices, as it failed to reach new highs while global spot prices continued to make new highs. The anticipated and esoteric Fibonacci confluence we mentioned that time with price targets hitting resistance at $ 770 and prices struggling at psychological $ 800 did work as anticipated with Gold closing above $ 800 just 3 weeks out of the last 10 weeks of price action.
And if this was not enough we did not have even one monthly closing since Oct above $ 800. A traditional metal analyst might call it a magical coincidence, but if such coincidences saves us time and keeps us away from Fed watching, inflation, economic worries, Italian Gold consumption, Dollar weakening and its effect on the European Gold market, and all that demand supply cause analysis, it was worth it.
We have highlighted on prior occasions that sideways markets lead to contradicting causal explanations viz. Prices can go up because of factor A, but factor B might still cause some supply pressures. And when the sideways action ends after the initial burst up, the news realigns itself to the price actions explaining why factor A interpretation was right in the first place.
The year end perspective on Gold suggests an ongoing intermediate (multi week) bottoming action at current levels. We consider a sizeable breakout above $ 800 still a low probability scenario for 2007. As most momentum indicators on weekly time frame are still in the process of hitting base. A break below $ 770 might just increase some supply pressure. We are no Gold bears and are looking up to $ 1000 soon and much beyond $ 1000 in years to come, but timing for us remains a more critical issue and understanding that bottoming like sideways action is never a few days affair.
On the Oil front, we saved some more valuable time when we discussed Oil $ 100 isn’t easy in our 22 Oct column. It’s more than 45 days a break at Oil $ 100 still remains a challenge. We will discuss Oil in more detail next time, while we watch causal extrapolations about where Gold or Oil might head in the next few days or weeks.