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Alessio Rastani: Will the gold rally continue?

by LLB Editor
5th Sep 12 6:30 am

Remember the trader who told the BBC that “Goldman Sachs rules the world”? This is his column

Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com)

Finally some good news for gold bugs!

Gold saw a dramatic 1.6% rise on Friday to close the day at $1687.  This was a move which I had anticipated in my market update last week.

Gold bulls speculated that Federal Reserve chairman Ben Bernanke (or “Osama Ben Bernanke” – as named by Texas radio host Alex Jones who considers the Chairman to be a “financial terrorist”) would make a strong case for further Quantitative Easing in his speech last week.

But that’s not all.

After almost a year of seesawing up and down, gold has managed to break out of an important chart pattern. See the chart below:

Chart showing gold breakout triangle

For chartists, i.e. traders who study charts, price breaking out of a triangle pattern is considered to be an important signal. 

Depending on which side of triangle the price breaks through, the breakout can indicate whether the original trend will continue or will it come to an end.

In the case of gold, the yellow metal has been in a steady upward trend (“uptrend”) since 2009. 

We were expecting a breakout from the upside of the triangle to indicate a “buy” signal. This would show that gold wants to continue its original uptrend.

However, if price breaks the bottom of the triangle, this signifies that the original uptrend has come to an end. This is because the bottom of the triangle represents an important floor in the market – known as “support”. The support for gold was $1530.

Now that gold has broken out of this continuation pattern, the question that everyone wants to ask is “will the rally on gold continue?”.

Last Friday the Federal Reserve chairman, Ben Bernanke signalled that Fed is ready to move on another round of Quantitative Easing (or “printing”).

Bernanke did not directly promise QE3 in September. However, he did draw attention to the dire state of the economy and the Fed’s commitment in supporting a recovery. 

Gold buyers seem to be betting that the speech was a support of further Quantitative Easing.

Take a look at the below chart of Gold:

 

Chart showing gold breakout triangle

We can see that recently Gold has re-tested the top part of the triangle (red line) and successfully rebounded from it. 

Friday’s upward action has also been confirmed with strong volume. Volume is the “fuel” behind market moves.

An increasing volume which is above its 50 day moving average (black line) indicates that buyers are more committed to their position – that there is more conviction behind the buying.

On something like this, I would look to buy into any weakness in gold.  In other words, any retracements on gold back to $1680 or $1670 are buy opportunities.

Whenever someone asks me whether I think the gold rally will continue – my answer is the classic phrase:

“Don’t anticipate.  Participate!”.

For further information about trading the markets visit my website www.LeadingTrader.com.

Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.

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