"If you look at the daily chart ... we do have an interesting pattern on gold ....
"From a safety stand point if I live in the Eurozone and I have all these headwinds ... my currency could be drastically devalued in a short period of time." Jones warns that if the chart pattern plays out, then gold could correct to the $1,490 an ounce level.
Jones isn't the only one noticing this pattern, however, and many traders will be looking to bet against prices to profit from a correction. But if it doesn't come and gold prices stay high, those traders will be forced to cover those positions, which in turn will drive prices higher, then "we are off to the races," says Jones.
The physical gold market has been largely ignored as of late and could provide hidden support for gold prices. Bloomberg said Tuesday that India could buy 250 tons of gold in the fall during its festival season and Reuters said their channel checks pointed to strong gold demand among Chinese jewelers throughout August, despite record high gold prices. China and India are the world's largest gold buyers.Phil Streible, senior market strategist at MFGlobal, says this strong physical buying could influence the gold price if futures contracts go into backwardation -- where the spot month, or most heavily traded contract, trades higher than a longer dated contract. If that happens and "if you see that start accelerating ... then you want to look at getting long the front month because that is going to be your physical supply squeeze." Streible isn't trading that theory yet but is monitoring the price swings. Gold mining stocks were higher. Kinross Gold (KGC) was up 0.92% at $17.56 while Yamana Gold (AUY) was 1.70% higher at $16.01. Other gold stocks, Agnico-Eagle (AEM) and Eldorado Gold (EGO) were trading at $69.90 and $19.73, respectively.
Alix Steel in New York.
>To contact the writer of this article, click here: Alix Steel.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV