After rallying $70 in less than a week gold now finds itself in no man's land, essentially equidistant from the nearest major support and resistance levels:

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Gold_Daily_8.27.2013

Now that gold has achieved the $1420-1425 target which we projected several times during the past month it is worth reviewing the past few months of market action in gold:

  • In late-June nobody wanted to own gold when it briefly fell below $1200 - simply by everyone hating it meant that gold was "cheap", however for price to rise a catalyst is needed
  • Gold began to gradually rise throughout July with no apparent "reason", analysts explained it as being "an oversold deadcat bounce"
  • After nearly reaching $1350 gold pulled back into early August, bears once again became vocal that gold was heading below $1000 in short order
  • Buyers came in and quickly drove gold through a very key resistance level at $1350 - once again there was clear explanation for the strength other than the usual "Seasonal Asian buying" etc. etc.

Analysts can now explain "Syria" as being a catalyst, also the Indian wedding season is coming up shortly, and we have the US Debt ceiling etc. etc. However, none of these are really new catalysts. We've known about all this stuff for a long time, it's just that suddenly some market participants are beginning to care about the reality of it all.

Just as there suddenly appeared to be a panoply of reasons to be bearish on gold below $1200 back in late-June, there are a bevy of reasons to suddenly be very bullish on the yellow metal. While I am certainly not bearish, I urge gold bulls to curb some of their near term enthusiasm and be cognizant of the fact that some of the recent upside can likely be attributed to various macro catalysts (Syra, US debt ceiling, etc.) that can have a wide range of outcomes.

In fact, I would not be surprised to see gold suddenly move into a $30-$40 trading range between $1400 and $1440 for the next several weeks. Advanced traders can utilize various short volatility options strategies using September GLD options, whereas, all other gold market participants should simply refrain from chasing strength over the near term.