Two thousand dollars an ounce – here we come.
You can almost hear the gold bugs cheering. Why shouldn’t they? The euro is on the brink of dissolving. The dollar is fading from its status as the world’s reserve currency. And gold bounced back from its recent correction in record time.
Gold rallied $150 an ounce last week. It tacked on another $16 in [Monday’s] holiday trading, closing above $1,900 per ounce. Now the shiny, yellow metal looks good for a run at $2,000 sometime later this week.
Take a look…
Gold has put together a short-term series of higher highs and higher lows. The price action is capturing the headlines. And as stocks decline and possibly retest their early-August lows, investors are going to flock toward the one asset that seems to just keep going higher… gold.[ad#Google Adsense 336×280-IA]Like I said… $2,000, here we come.
Of course, there are risks. The short-term overbought condition that existed just prior to gold’s recent $200 correction is prevalent once again. Sentiment is back to being overwhelmingly bullish. And a move to new highs this week will create negative divergence on my favorite momentum indicator – the moving average convergence divergence (MACD).
Negative divergence develops as the price moves higher but the MACD lags behind. It’s a warning sign the rally has fading momentum… And it often precedes a reversal.
We got that correction. Gold dropped $200 per ounce in just a few days, and investor sentiment rapidly shifted from bullish to bearish. That move shook a lot of weak holders out of the gold market – though it didn’t seem to faze many of the diehard gold bugs.
Now, those weak holders are trying to buy back in. As they do, they’ll push the price up toward $2,000 – a nice round number and a long-held target for many gold bulls.
So look for higher gold prices this week and maybe next. But keep an eye on that negative divergence. It’s providing the first warning sign of a more important intermediate-term correction.
Best regards and good trading,
— Jeff Clark[ad#jack p.s.]
Source: The Growth Stock Wire