Gold has become a 'Humpty Dumpty' trade
Gold sentiment has certainly turned around in recent weeks. The market had been very bearish, but that was before gold rose more than 20 percent from its lows—a development that had bulls chirping that gold's "bull market" is back.
But as we see gold futures oscillate around $1,400, gold now resembles Humpty Dumpty—and it is imperative that it lands on the right side of this psychological "wall" in order to maintain momentum.
The Syrian situation should prove supportive of gold, but only because the idea that gold is a safe haven has regained traction among investors.
Gold bulls shouldn't get too confident, because gold could lose that "flight to quality" feeling again.
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To really get a handle on where gold is going, we have to turn to stocks. And as the S&P struggles to climb over its own psychological wall at 1,650, this perceived equity weakness should also allow gold to revisit its technical target of $1,525.
After all, technical targets have a way of magnetically moving markets. Moreover, that level coincides with the prior multiyear low that gold violated in April.
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Investors are certainly watching to see which side of the wall gold will fall on. But we feel it will fall on the "above $1,400" side, and stay there for quite some time.