Wednesday, March 2, 2011
Gold This Morning: The Rule of 90 --Jon
After yesterdays invigorating activity establishing a new all-time high for 1 oz of gold, overnight volume has been better than the norm and after some perfunctory pullbacks right out of the textbook gold prices are firm and feisty. Let's review the facts...The GSR is unchanged ~41.30 and the silver fantasy remains intact amidst intriguing conspiracies and precocious pundit bulletins promising ever higher prices which I suppose still gives credence to the old saw of 'buy the mystery'. Gold open interest is still looking like a sinewy welterweight ~510,000 contracts with lots of room remaining to punch its way to heavyweight status. RSI may bother some ~73.40 here as it flirts with overbought, but RSI as we know lately can stay within the range for some time; if you are concerned wait for divergence. Today: The Rule of Ninety? I learned this years ago from one who truly traded for a living and the basis was that anytime a security reached the figure 90 for the very first time as a price then 90% of the time the price would reach 100. This has morphed into 'round-number psychology' with many unlicensed practitioners. I bring this up now because immediately ahead of us is a major 'round-number', $1,500 and just as a reminder gold first hit $900 1/14/2008 and then achieved $1,000 on the close 3/14/08. Of course that event shortly triggered a vertiginous swoon to lows ~ $700 by the following December...but that's another story.