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Gold bubble burst ?

After posting record prices and climbing to 1917 levels for the first in a Parabolic fashion, Gold slammed down 150 points to 1745 in two days amid huge volumes. The rally in Gold a safe heaven flight from economic turmoil,  finally came to an end. Gold prices have been going up since the Libyan war started and the economy started stalling. Speculators pushed them higher during the financial turmoil on the debt crisis as the stock market plummeted to new lows. The buying climax came on August 23 when it hit 1917 for the first time. The chart was Parabolic as you can see and very extended.

The drop in Gold prices is sheer profit taking after it has climbed up 400 points since July in less than six week. Mihir Dange of Arbitrage LLC says “You have a commodity that retail investors, hedge funds and everybody were long, and the technical indicators showed it was over bought. It was just a matter of time before the market starts cracking,”

Encouraging reports on US manufacturing and a Fed action on QE3 struck a chord of fear among Gold traders. Fed are suppose to announce on Friday from Jackson Hole, Wyoming, if they would be buying more bonds and allow more quantitative easing and money circulation. A sharp correction was warned by many analyst because of the over bought conditions.

The move was widely expected as the put call ratio also narrowed on Comex Gold volatility. The CBOE Gold volatility index GVX is now near its 52 week highs. CME group is now raising margins to trade Comex Gold futures by 27% as of tomorrow.

The Gold futures are poised to test 1627 level its 50 day moving average and if it holds here, buyer may appear again. As long as the US economy stays in doldrums owning gold may be the way to go or trading Gold Futures to the upside or downside can be a profitable stratgey.

{ 3 comments… read them below or add one }

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