The thing we all know with sideways action is that it eventually has to breakout – gold has reached that point and over the next few weeks it has to break out of the $100 range it’s traded in since the start of June.
Earlier this week gold dipped beneath the $1600 level after poor economic news from China – China is the second largest buyer of gold as people invest in the yellow metal to offset inflation concerns. With inflation worries dampened, the demand for gold drops. The strong support around the $1580-$1590 level held firm though and soon gold was back above $1600 as comments from Angela Merkel gave support to Mario Draghi’s crisis fighting strategy for the Euro.
Traders are now waiting to see what happens with the Fed at the end of this month. Any indication that QE3 is imminent will send prices beyond the strong resistance at $1630 and a breakout will ensue.
Below us there will be support around $1580, $1560 and $1525 – if that lower level gives way; our view is that the price is going MUCH lower and probably pretty quickly.
At the moment we’re just waiting and watching to see what happens. Our success has come from picking up on strong movements and getting a good slice of the action – right now there’s not much of that about. But that’s ok…patience and disciple have always been the key to success.