Gold is trading almost entirely as a function of QE3 and it’s worrisome.
First, QE3 might now come, or it might take awhile before it arrives. Second, after QE3 arrives, what keeps gold moving higher?
It’s easy to forget that gold rallied 500% before QE entered the lexicon but that doesn’t matter now. Gold, as I’ve said before, is entirely psychological.
If the market thinks QE matters, then it’s all that matters. In the past, inflation fears helped to boost gold but with tomorrow’s CPI expected at an 18-month low of 1.6%, that’s a tough argument to make.
At the end of the day, I like gold because so many currencies are so unattractive but when I see reports where analysts say they are ‘pounding the table’ for gold longs, I get wary.
In the meantime, play the ranges and wait for a clear technical signal.