A month ago today in 'Fed Taper a Golden (XAU) Move' I wrote: "Gold may have put in an important low on December 31st, trading to $1,182.57." I had finished the constructive note by indicating that: "No attention has been given to the slight advance and little should be expected until $1,300 at a minimum has been breached."
Gold breached 1300 two sessions ago and has since added $31.50 or 2.4%. This is the kind of reaction that was expected and it is likely to be given notice by momentum players.
I don't imagine there is a huge short position in gold, though there seemed to have been quite a few predicting a near-term reach to $900 or even $750. I do not expect gold to advance because of short positions. Rather, I suspect there is again a general lack of participation that could with rising prices once again give rise to its inclusion in a greater number of portfolios.
My premise for continued gold rise has long been the expectation that central banks and in particular the Fed have the capacity and willingness to raise the level of inflation. At the same time, I recognize monetary policy is an inexact science. Historically, the Fed has had a tendency to allow accommodative policy to outstay its useful life, thus at a minimum setting the stage for higher levels of inflation.
This is not without consideration to the numerous undershooting over the last years where the Fed had projected real GDP growth well beyond that which was eventually seen. Each time the Fed came back with additional levels of monetary accommodation. Discouraged by repeated attempts to conquer slow growth, it is easy enough to imagine the Fed eventually doing more than needed to break free of the bonds of underperformance.
Some might argue that recent weaker than expected economic reports including employment, production and consumption have again awakened concern for additional monetary policy accommodation and thus greater current prospects for inflation and rising gold prices. To this I admit to having greater certainty that the Fed will eventually ease too much and too late than that it has (to date) already done so.
Technically Speaking; XAU spot has experienced 8 (eight) new session highs since January 31st without a 3 (three) session pause and thus is mildly overbought. I am not terribly concerned that slight overbought conditions will curtail price advance as the recent low is not that far away in either dollars or time.
Today's price action was a closing bozu with high and closing price at 1331.50. This strong close suggests continued gains forthcoming. Additionally, the last three sessions represent a strong bullish advance in 'three white soldiers'. While candlestick theory rarely offers objectives, we might look to the rather striking tops formed late August and early May and suggest important levels at roughly $1415 and 1473...after breaching a widely recognized 1350 level.