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Gold Pops From Lows, What Next? (GLD)

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Gold Pops From Lows, What Next? GLD
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Last Friday, Benzinga published a piece titled What the Heck to Do With Gold Here?

After seeing that a sell-off may have been overdone and saying that a pop was in store, sure enough gold futures rose sharply Monday.

Gold futures rallied Monday to a high of $1,261.70 after dropping below $1,200 per ounce last Thursday for the first time since 2010. However, most of the blood-letting may be done, at least for now.

Related: Freeport-McMoRan and Other Mining Picks from Deutsche Bank (CDE, FCX, VALE).

Prices Plummet

Looking at the chart directly below, it can be seen that gold broke its long term uptrend back in the summer of 2011 after posting a new record high above $1,900 per ounce. Since then, the metal attempted to rebound back to highs but failed on a retest of this long term uptrend and sold off sharply to a new three-year low.

gold_long_term.gif

Although the yellow metal did not test the Fibonacci retracement level at $1,155.61, this level could be a good place for traders to place stop losses who look to buy on the next pull back. The level is only about $20 below the most recent low, making that range a good support level for traders to look at.

Correlations Breakdown

Recent correlations between the metal and other assets have broken down. As written last Friday, the correlation with inflation expectations has held firm and gold has fallen in line with inflation expectations, potentially slightly over-shooting a sell target. However, another key correlation has broken down much more strongly and was a great signal for the pop today.

As the article Friday said, "Gold has tended to track the South African rand with a slight delay, as South Africa is a large gold exporter and is sensitive to prices. However, gold currently sits below the currency and good pair trade could be to go long gold and short the rand against the dollar. In other words, go long gold in rand terms."

large_zar_vs_gold.gif

Gold began to fill the gap between the two assets Monday with its strong 2.6 percent gain back to above $1,250.00 per ounce. As the chart above shows, the metal nearly corrected back to the South African Rand/U.S. Dollar rate, as expected. However, as the chart below shows, there still may be room for a move higher towards $1,300 per ounce, another key technical level where there is strong resistance.

small_zar_vs_gold.gif

Contrarian Bet?

Is being slightly bullish gold, even remotely, contrarian at this juncture? Probably, but trading against extremely bearish sentiment tends to profit for those who know how to read the sentiment effectively and for those with years of experience.

And who better to have this experience than the experts at Sprott Asset Management, some of the best and most experienced precious metals investors and traders in the world.

And for Benzinga Pro subscribers exclusively, David Franklin, Market Strategist for Sprott, will appear live on the audio feed for an interview as to why he is turning bullish on the yellow metal as the market becomes increasingly bearish.

Posted-In: Long Ideas Technicals Commodities Previews Intraday Update Markets Movers Trading Ideas Best of Benzinga

 

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