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Upmove in Gold Nearing Exhaustion?


This morning marked the second consecutive big up-gap open for gold, with the SPDR Gold Shares (GLD) gapping from 167.81 to 170.15. Yesterday's gap (from 162.21 to 165.66) came after the GLD challenged its upper channel resistance line at 162.50 on Friday.

The price move has the "right look" of a parabolic blow-off. Usually the first up-gap represents the breakaway (initiation) portion of the blow-off, while the second up-gap represents the continuation of the center thrust of the blow-off price move.

After the extension of the upmove beyond the second up-gap open, things typically can get a bit tricky for the holders of long positions, especially in the absence of additional bullish catalysts to perpetuate the upmove (in corn or soybeans, for instance, new weather reports that project continued hot temps, and draught conditions).

Barring additional bullish perceptions based on headlines, events, etc., the inflated, very crowded long position starts to come in, and, if it presses into the second gap area, could trigger long liquidation by the folks who were late to the party.

So far today, the rally has lost steam, with spot gold down nearly $30 from its new high at 1781.50. The GLD, meanwhile, has completely closed this morning's up-gap. Now it will be very interesting to see how the GLD behaves heading into the FOMC statement, and then how it closes. If it closes beneath 167.80, then my work will register initial near-term signals that the upmove is exhausted for the time being.

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