Studying the chart above, we can see that the RSI has dipped below 30 and the USD has bounced on its long term support of 80, this suggests to us a short term rally is ahead. This would put a cap on the recently rally in gold prices, just as they reach a minor resistance level at approximately $965.
When the RSI dips below 30 for the USD, this has been a very bullish sign over the last year or so. However, gold often can continue to rally when its RSI passes 70, so just because the RSI for gold is nearer 70, it does not mean that this rally is over. But coupled with a strengthening US dollar and some very overbought gold stocks, we feel that the gold sector is going to be weak over the next few weeks, along with the broader equities market as the USD bounces up from its historical support at 80 and moves out of oversold levels.
We would not be buying any gold stocks at the moment. In fact, we sold all of our holdings in Randgold (GOLD) in the last trading session for a profit of 82.44% in less than a year, and we are closely monitoring other gold stocks that may be looking overbought.
Stay tuned for more updates.
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