(Kitco Commentary) - In my last piece I suggested that the gold price is most likely poised to stay stuck in a sideways grind and perhaps for an extended period of time. I noted this would be especially true if price fails to break out of the downward channel toward a higher high.
I also noted that gold was at horizontal support. This morning the gold price is reacting to that support level and is once again bouncing upward, testing the upper boundary of the downward channel.
Whether or not gold will break out and make a higher high is yet to be seen (I'm looking for $4250 on a weekly closing basis)- and even in that scenario, a prudent layered entry into a long position (for now) remains the wiser choice for bulls in my opinion.
The weekly chart points to plenty of room overhead, but it's important to understand that oversold conditions don't automatically lead to monster rallies. When price is oversold as aggressively and for as long as is the case currently in gold, it maybe indicative of a trend change that could take months to fully play out rather than a launch pad setup.
Should gold break out from the downward sloping channel - I will be looking intently at how high price can get before momentum gets back into overbought territory.
Meanwhile - the US10 year treasury yield is threatening a break out of it's own - a very interesting development in light of gold catching support rather than falling farther.
Gold bugs might be asking themselves - Is this the start of big one? Is the great rotation out of US debt and into hard assets about to kick into a gear not seen for decades?
Good luck.
Jonathan Da Silva
