Today’s Technical Analysis has a special morning edition; the gold price is on the move and I didn’t want to hold this one back until later.

Yesterday saw a $25 spike in the gold price. Initially the move was attributed to ‘technical buying’, but this morning came talk of a Chinese SWF switching Dollars into gold.

Wednesday’s move blasted through, and held above, recent resistance with a rising RSI of 67 and an encouraging couple of weeks of higher lows.

The reason for rushing this TA piece out is because I reckon a test of June’s $990 high is on the cards, and if that holds then the big $1000 must be tempting.

However, two words of caution; firstly, yesterday’s move was apparently made on a low-volume day (if true this doesn’t gel with the sort of size associated with a SWF), which makes the chart less trustworthy. Secondly, the price is $10 above the upper Bollinger band. This happens occasionally and won’t necessarily prevent the move up to $990, but it does flash a warning light. Scrolling down to the 30-minute chart shows an over-excited market with an RSI of 72; again, this is a warning but wouldn’t prevent a sharp spike up.

There are a couple of ways of playing this; one is the ‘gung-ho, lets join a market on the move’ approach, buying at market, but with a stop just below the recent S&R line around $965.

The more cautious strategy is to wait and see if the market pulls back to test the S&R line; if this acts as support then buying at around $970 offers a better risk/ reward. If gold moves higher without the pullback then there’ll always be another bus along later.

The alternative view is that this is a dodgy spike which could see a swift reversal back to $950.

I’ll be looking at another market this afternoon.

Happy Trading