Gold Is Overbought, But Ultimately Poised To Go Higher
On January 2, 2014 I wrote an article explaining why I thought gold was forming a solid near term bottom and would likely increase in price. Since that time, gold futures have surged higher by nearly $100.00 in price. In that article, I gave three compelling reasons for the potential surge in gold, the case that gold is real money, and the current bullish chart pattern that gold was forming.
So, besides gold rallying higher recently has anything really changed? The answer to that question is no. The financial media are still very bearish on gold futures. Gold continues to be real money, it cannot be printed like U.S. Dollars, Japanese Yen, or any other fiat currency backed by nothing. Money printing is precisely why virtual currencies such as Bitcoin have become so popular lately. Just think about all of the nations that are facing food price inflation at this time because of all the money printing that is happening around the world. As a contrarian trader and investor I am generally bullish when the crowd is looking for lower prices. My last point for higher gold prices was the chart pattern that was forming in late December 2013. Well, now that chart pattern has formed and continues playing out. It is also signaling gold futures to move into the $1400 area, currently gold futures are trading around $1321.00 an ounce.
Now let me be clear, gold is slightly overbought at this time on a daily chart. Overbought means that gold has rallied so much in the short term that it needs to consolidate or trade sideways for a little while before moving higher. After all, in late December 2013 gold futures were trading as low as $1181.40 an ounce. Remember, equities are very much like people, if you run up a steep hill you will probably need to rest before running further up the hill, it is the same with equities. So while gold may need to rest or pullback over the next few weeks it is ultimately setting up to trade higher.