Rally in Precious Metals Is in Peril

Gold and other precious metals are on the recovery trail, with investors worldwide growing nervous about 2009 inflation pressures after the massive injection of capital by world governments fighting the credit crisis. The emerging rally is gathering momentum, but massive resistance lies overhead, near gold's historic high just above $1,000.

Of course, the yellow metal is also a fear hedge in these times of economic peril and instability. However, that emotional factor is likely to ease by the second half of next year as economists and analysts further quantify the levels of toxic debt worldwide as well as the impact of the colossal stimulus measures.

Gold Futures eSignal

The last leg of gold bull market began in the summer of 2007, when the futures contract rallied out of a yearlong basing pattern at $700. The subsequent uptrend added more than 40% to the metal in the next eight months, with the instrument finally topping out at $1,035 in March of this year, right at the peak of the Bear Stearns crisis.

The subsequent decline dropped the contract down to support at the basing pattern, where it bounced strongly in October. The uptick since that time has retraced nearly 62% of the March-into-October decline, with the metal now testing the $900 level. Notably, this price level turned away the last recovery effort four weeks in a row back in October.