Richard Rhodes

Richard Rhodes

Gold prices are obviously rising, and they are rising rapidly. However, given the move has begun to go parabolic in its 8-year of rally - we have to question how much higher gold prices can go in both the short and intermediate-term. To this end, the monthly charts adds some perspective in our mind.

First, let us state that we are not gold bugs, although we do believe they are headed sharply higher in the years ahead - hence we're intermediate-term bullish, with projections much higher than current levels. Second, in the shorter-term, we question whether prices have become just a bit too frothy and are in need of a correction. During the bull market since 2001, the 5-month RSI has reached into the 80-to-90 range on several occasions, which in each case corrected rather sharply lower back towards the 50-level before trending higher once again. Presently, the RSI stands at 84. It can go higher; but history has shown the risk-reward of buying gold at current levels may not be the most opportune entry point. Lastly, we would point out that gold prices are now a rather "stout" 45% above their 50-month moving average at $773/oz. Recent history shows us the once the 50% level is obtained, then we should become rather worried about a larger correction unfolding. At today's prices, this would roughly mean another $60/oz rally towards $1200/oz, which is a nice "big number." At that point, we're surely to see the media become even more lathered up than they already are about gold. Then, one should consider pulling back from the market for a bit as the undercapitalized players at taken to the woodshed for a quick beating - pushing prices lower into the oft-tested rising 20-month moving average currently rising through $921/oz.

In other words, those who chase this rally...keep your stops tight; or trade less than normal. In our opinion, there will be a better entry points in the months ahead.