In watching the short squeeze taking place in the gold market this AM, I am noticing that the push higher is creating a WEEKLY UPSIDE REVERSAL PATTERN on the intermediate term chart.
As the Euro recovers off its lows and as the Dollar fades from its best levels, shorts are covering in gold and that is setting off a wave of buy stops as upside technical levels are getting taken out. Hedge funds are short, not in large numbers, but large enough to produce this buying.
It looks like the bulls have managed to dodge a bullet with Mr. Draghi bailing them out yesterday and thus we have a massive amount of repositioning taking place that started yesterday and apparently is continuing this morning.
I want to see how this market closes this afternoon to see whether the buying is going to fade but for now, the gold market is working on a reversal pattern meaning that the low below $1050 might be it for a while longer.
It might very well be a case where now that the market has effectively fully priced in a December rate hike, the emphasis is now going to shift from "WHEN will they hike" to "AT WHAT PACE WILL THESE RATE HIKES FROM THE FED NOW COME?"
In other words, the markets are now in a "SELL THE RUMOR, BUY THE FACT" mode when it comes to gold. This does not mean gold is about to embark on a new bull market. What it does seem to mean for now is that the market is going to stabilize down here. We will have to continue watching the charts as well as the Dollar price action as well as looking at GLD to see if reported holdings actually begin to rise. My thinking is that if we do not see an increase in the holdings, then this rally is going to fade.
It is one thing for shorts to cover; it is another thing for a bull market to take place. Keep a level head and do not get goofy out there. Control your emotions and stay objective and above all, avoid getting snared by all the "THIS IS IT's" that are now going to start coming out of the gold bug camp once again.