Gold Rally to Pause
February 1, 2012

A little over a week ago I noted a suspicion in the Member Letter that, although gold was pushing up against its 150DMA... a very strong support and resistance level for the yellow metal... we would see price push firmly through the moving average in a miniature melt-up move. The premise for this view was a subjective read on the market in which it seemed gold traders were finally recognizing the importance of the December low and were itching for a pull-back to initiate positions.

Of course, markets never cede to the desires of the masses, so the necessary price path would entail a quick spurt higher to force traders to chase. Once enough traders had capitulated on the buy side, their pains would then be compounded by the appearance of the correction they originally sought. I believe that correction should materialize presently.

From the market cycle perspective, gold is pushing deep into its timing band for a daily cycle low. Likewise, the dollar is due for a short-term low of its own. Once the dollar finds its footing, we should see the DX bounce for a handful of days, inducing minor corrections in precious metals and likely the stock market, as well. These corrections will present potent trading opportunities, offering a window to augment exposure to precious metals and related mining shares.