From a technical perspective Gold seems to have topped out at $730 an ounce. The monthly chart below shows the cash price of Gold in the last 10 years.
Gold started its latest move in September 2005 when it broke the mark at $450 (the previous high from November 2004) and rose to as high as $730 an ounce in May 2006. This movement showed an increase of 62 percent. How much time was needed by Gold previous to that large up-move to complete a movement of such a huge magnitude?
The previous movement took 35 months. It started in January 2002 when Gold broke above $281 ultimately reaching $456 in November 2004. Compared to the length of the latest move with the same magnitude, which was only 9 months, this time frame is quite long. I think Gold went for broke in its latest move. However, this does not mean that I am bearish for Gold in the long-term. I am still a believer of the secular bullmarket trend in commodities, as long as the Asian economies continue to display high levels of economic expansion.
Lets take another look at the chart above. What does the evolution of volatility tell us? If you look at the last four bars, you can see, that the volatility, as an absolute measure from high to low was tremendous over the last four months (notice that this is a logarithmic chart and therefore the following statement is also true for a relative volatility measure). I think this is another sign that Gold has toped out at $730, at least for the next 6 months and perhaps for a much longer period, if the world economy suffers from a possible recession. Given the choppy water behind us, I guess Gold will be less volatile in the near future on a weekly basis.
Trying to buy and sell relative tops and bottoms in Gold seems to me is the best strategy for Gold in the coming months.
Editor's note: ETFs for the gold market include GGN, GLD and IAU.