Why gold market is on big rally in November

The market that has stolen the spotlight lately is the gold market. While a 20 year bear market went a long way to destroy gold’s image, the first decade of the 21st century has belonged to gold. From its lows of 250 dollars, gold has now climbed almost 900 dollars higher and sits at a historic price peak relative to the US dollar.

Gold is another market that usually sells off in the October and sometimes November time period. True to its cyclicality, gold peaked on October 13th and pulled back into month’s end. However, as soon as November arrived, gold did what it has been doing since September, and that’s rally.

As soon as the pullbacks begin in gold, contra-seasonal news hits the street and propels gold higher. In September it was the Chinese telling its citizens to buy gold and silver. In October it was India buying gold and we think this most recent rise might be due to the developing story that tungsten is being discovered in gold bars.

While some people last week pointed to the fact that this story is not a new one we want to point out that it sometimes takes a bit of time for investors to grasp the big price changing stories. It’s almost like when you hurt yourself really bad. There’s a time delay before the shock or pain really sets in. We suspect that the gold market may be waking up to the fact that all is not right. We are not certain, but it must make some very uneasy.

Whether this is true or not we cannot dismiss the fact that many countries are in the process of calling their gold out of storage and demanding they be returned back to the mother countries. To me, these are signs of uncertainty and fear and not just prudence. Time will tell.

Now if all is well in the gold community, why would countries call their gold out of storage facilities? Can you think of any other reason besides CONCERN? Why would you take your money out of your local bank to store it home? Think for a moment the potential for panic as 400 ounce gold bars get drilled and tungsten is found in the middle. Now this is all speculation on my part, but it is something that bears (no pun intended) watching over the coming weeks.

The one thing that we are not speculating on is the price chart. We can see that there is no doubt that gold has broken out to the upside in very strong fashion. So strong is gold that the overbought readings are their highest since 1981. Over the past few weeks we continue to make new highs at a time when gold should be correcting. Now we are approaching an important price point on the weekly chart which should give us clue as to whether gold will finally produce a pullback.

Notice that the weekly chart channel that has been drawn shows a potential price resistance area directly ahead of us.

The 1135-1150 area is an area where gold should at least see some type of pullback. We say should because gold has traded above this channel line once before during the peaks of 2008. However, it was also a key resistance in the November timeframe of 2008 and the 2009 February price peak. That we have arrived back at this resistance line a full year later is interesting and from a cyclical standpoint, is suggesting that it could be an important price and time area.

Join my Free Commodity Trading Newsletter: www.TechnicalCommodityTrader.com