Gold short squeeze. Gold did another one of those $50 Dollar blastoffs yesterday – Silver went nuts too. It was a precious metals broad based rally. I will let you do all the gawking at your charts on the specifics. The real issue is, what’s going on, and where do we go from here?
This all started last month, after weeks of quiet trading that drove Gold’s 60-day historical volatility to the lowest since 2010. It had broken down out of a massive wedge on the daily charts, and had rallied back to this break point, ready for the next leg down. Many of the banks were calling for further down side in Gold. So everyone was short.
The Fed said it would keep interest rates low for some time to help the US economy recover, in what the street interpreted as dovish. That pushed the Dollar lower, giving investors an incentive to buy precious metals. But the kicker has been the geopolitical concerns in Iraq and what it could do to global oil prices. On the lead up to the Obama press conference yesterday, the emotions got carried away, as delay after delay, on the start of the press conference, made traders nervous on what he might say.
And just what did Obama say? Not much other than, Iraq, your on your own. He will send a few troops to protect the embassy, so as to not have another Jimmy Carter style embassy crisis, a few drones, a lot of talk, but America does not have the stomach for a third Iraqi ground war. Iraq is set to descend into a sectarian civil war, like Syria. The odds that peace will break out are slim. If the global policeman leaves, you know what will happen. This geopolitical event has legs.
From a market perspective, where do we go from here? First thing you must do is to, NOT COUNTER TREND TRADE this move, even if you can get lucky and pick up a nickle or two off the highway before the speeding bus comes, and you become a bug splat on the windshield. Probably the best advice is to stay away from this market, unless you are experienced. If you must, look for places to get long. It’s an emotional event driven market. It will rise and fall now on the news flow. First initial target is 1330, where it may stall and after working out the weaker hands, and if the geopolitical events worsen, $1550 is a good target for medium term.
Of course, if things really tank, the sky is the limit for Gold. One last point on these low volatility grinding markets, that then suddenly turn into a massive squeeze. Can one think of another multi-year low volatility market where all bets are in one direction? Yes, US equities.
Blue Point Trading, William Thompson