Gold's Powerful Uptrend

 | Aug 23, 2011 | 11:30 AM EDT
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Active December Comex gold futures on Tuesday scored yet another all-time record high of $1,917.90 an ounce as the powerful bull market run rolls on with no significant early technical warning signals to suggest a market top is in place. Gold-market bulls now eye a major psychological upside target of $2,000 an ounce.

Some profit-taking pressure in gold Thursday morning was expected. Helping to fuel profit taking in the precious yellow metal was a risk-on attitude in the marketplace Tuesday morning as U.S. stock indices posted gains. Gold and other market traders have been watching daily price moves in U.S. stock indices to gauge investors' risk appetite.

Much of the strong demand for gold this year is driven by perceived safe-haven investment buying amid geopolitical tensions in the Middle East and sovereign debt concerns in the European Union and the U.S. The unstable and deflating currency markets have also been bullish for gold as many traders and investors view gold as the ultimate world currency. As the U.S. dollar and euro waffle amid fresh ideas, the central banks of the two major world currencies will again ease their monetary policies (i.e., print more money). Traders are buying gold as a hedge against further deflation of the greenback and the single euro currency.

In August, gold-futures prices have appreciated by about $300 an ounce as the bull trend has become parabolic, meaning nearly vertical upside price action on the daily chart. It is typical for a commodity-futures market to move into a parabolic state in the late stage of a mature bull run. Late-stage parabolic price moves in a bull market, however, can see price gains of 25% or more of the total bull market move.

Source: FutureSource

Indeed, the near-term price uptrend in gold futures remains very powerful. The Directional Movement Index technical study overlaid on the daily bar chart for December gold futures presently shows an ADX line reading just above 55.00. Any ADX line reading above 30.00 suggests a powerful trending price move is occurring in a market. Subsequently, the path of least resistance for gold prices will remain sideways to higher and corrective price pullbacks will remain bargain opportunities.

Analysts have increasingly characterized gold's recent price move as a speculative "bubble" that will soon burst, which suggests the bull market move in gold will carry on. But veteran market watchers know that analysts' prognostications are wrong most of the time.

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