Gold Breaks Out, But Beware a Potential Pullback

The chart above shows the strong breakout in gold. This is actually the Gold ETF (GLD), but it tracks gold prices very closely. You can see the strong volume spike yesterday as gold broke out convincingly above recent resistance.

Gold has been strong in conjunction with the weak dollar, one of the primary factors in the recently rally. There is a lot of chatter about the weak dollar, and central banks around the globe trying to diversify their dollar holdings and boost gold reserves.

But central banks are notoriously poor market timers, and I would caution against falling in love with gold just as it is breaking out to new record highs. We are long gold in our portfolios currently, but I will look to take some profits if prices continue to rise short-term. A strong bounce in the dollar could easily shake out a lot of the newly minted gold bulls, and spark a sharp pullback.

Outside of gold, the markets were lower in premarket trading, but have since climbed back into positive territory. The first few earnings reports from the likes of YUM, COST, and MON all came in ahead of estimates - a good sign. Earnings season kicks into high gear next week, and will likely become the new catalyst for stocks at the margin, taking the wheel from the dollar, which has been the primary focus lately.

Asian markets were higher overnight; the 10-year yield is slightly lower at 3.20%; and the VIX is -1.5% lower to 25.30.

Disclosure: Long GLD

Comments

[keithfeather:]

The chart of gold and silver versus the euro gives an entirely different story. Wonder what that means.

Oct 08 12:34 PM

[wow-me:]

euro iis strong

Oct 09 08:35 AM