Gold: Bull Market Madness or Blow-off Top?

Gold has been on a short crushing bullish run since the first of July. A technical dip below the 50-day simple moving average in mid June triggered many traders to go short. This was a particularly strong signal being that it was the first time the 50-day moving average broke since January. However, the bearish jubilation was short lived as gold price just dipped to the 1478/oz level prior to bursting to all time highs in the 1602/oz area. While gold is obviously in a long term bullish trend, what has triggered the acceleration to the upside?

International debt problems are the prime culprit for the sharp increase in gold prices. With both the U.S. and Europe teetering on the brink of debt default, traditional safe havens such as the U.S. dollar have shrunk in appeal to investors. The only thing left that feels secure is hard assets with gold topping the list.

Is it possible that this run is the final move higher for gold prior to a prolonged bearish trend? Some technical traders are calling this rapid move higher a blow-off top. This refers to a final frenzy of buying that often occurs right before the trend changes. This appears very likely, if history is any guide. Kitco’s senior metal analyst Jon Nadler agrees, as he explained to the Associated Press, “Much of that demand has been from speculative investors, such as hedge funds. Gold could plunge — if investors regain their confidence that the U.S. won’t default and that the 27-nation European Union won’t be threatened by the region’s debt problems.”

I wish this was all about the man on the street, pension funds, but it’s not. It’s the type of player that tends to get up at the very next opportunity to find something hot elsewhere. Will all this end in tears? Quite likely yes, because I see that the demise of the European Union and the United States as a debt entity is really not in the cards.”

I concur with Mr. Nadler, believing the end is very close for the bullish gold trend. However many disagree believing gold will push the $2000/oz prior to any substantial pullbacks.

If you remain bullish on gold, but don’t want to purchase the futures or gold directly, what’s the best course of action? Traders can look at the gold miners such as Yamana Gold (NYSE: AUY), Goldcorp (NYSE: GG) and Barrick Gold (NYSE: ABX) .

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