We are long gold for the long term. The last time we talked about gold, on May 20 (http://www.fxbeer.com/gold-nearing-buy-zone/) we talked about how it was a great time to add gold longs. We virtually picked the bottom and were pleased to see gold rally to a record high today, gaining $70 from our entry point.
What we weren’t pleased to see was the reaction of the market after we broke the old record of $1,249.17. The market was only able to hold above the high for 30 moments. Two more breaks higher touched just two dollars higher at $1.251.68/oz. Price action then turned sour and retreated to close $13 from the high at $1137.
We are now in a position where we have to decide whether to hang on through a potential correction or take profits. We have no doubt that gold is heading higher in the long term but the reversal today is an unmistakable technical signal. As hard as it is for us, we must head to the sidelines. We don’t see any correction below $1200 materializing but for the next few days we see the potential for profit taking. Hopefully, this allows us to re-establish our position at a more attractive level.
On the other hand, we don’t doubt the ability of gold to rally. The RSI isn’t flashing overbought signals and the case for gold buying remains strong. If we see a close above $1250 in the coming days we will happily give up the early part of that move for the chance to confidently buy into the trend.