The precious metals market had been giving us mixed signals over the last few weeks. On my Sept. 28 blog I wrote:
"Gold and silver seem to be at a crossroads right now and have the potential to turn either very bearish (short-term) or very bullish...As long as gold stays below $1170 and silver stays below $15.90 (spot prices) I will maintain my bearish view."
Then on Oct. 7 I wrote: "Silver rallied strongly yesterday and exceeded its August high while gold prices did not. This could be a case of bearish intermarket divergence (until gold makes a new high), but it could also mean that the precious metals are starting to turn bullish because the cycle pattern in silver charts is now pointing up."
Today gold made a second new high (after clearing its Sept. 24 high) and dramatically broke and closed well above its Aug. 24 high of $1170.10. This means that the current cycles of both gold and silver are now pointing up which is at least short-term very bullish. Directional momentum in both these metals has shifted to 100% bullish. I mentioned recently that reversal zones can occasionally accelerate a directional trend and lead to a "breakout" (or "breakdown") in prices instead of a turnaround. This could be happening here, but the current reversal zone could extend into the end of next week so we could still see prices turn down. Nevertheless, the potential now for a major rally in both gold and silver is strong, and this prompted me to bail out of my short position in gold today. It is possible for gold to now rally to $1200 or higher. Any rally that breaks above $1232 would be a very bullish signal for the precious metals. If gold prices back down a bit over the next few days but stay above $1170, I will consider going long. Silver prices did not rally as strongly as gold today, but they are starting to rise in the overnight market, and it looks like silver is following suit with gold and "breaking out". Because the price is still close to $16, I am going to enter a long position in silver tonight for tomorrow's market open and place a tight stop loss on a close below $16 (and/or if gold falls back below $1170).