Just as QE∞ seems to have caused the markets to pop, so too have the metals gained since Ben Bernanke’s speech. Take a look at this GLD (Gold ETF) chart and see if you can figure out exactly when Ben Bernanke made his speech.

Tough to tell? Interestingly, it looks like the market got scared for a few moments just as the speech was being released. But that obviously didn’t last long, with gold, silver and just about everything else enjoying a nice pop mid-day.

But how sustainable is this? Should we expect a continued rise in gold in light of QE∞? The answer, of course, is yes… and no. Just like the markets, there are reasons that they must move in certain directions in the medium and longer term. Short-term movements can be very difficult to predict and grasp. While we can’t gauge long-term movements with precision, we can gain a very good idea of what to expect through studies such as the one we’ve been pursuing throughout the week.

So, what can we expect from gold in the short-term? Initially, more of the same. We might get a little more pop out of this. But expectations are that we need a consolidation right now before extending much higher. However, gold tends to defy some of the technical we use for the markets in general, as we can see in some of the charts we’ll be examining. First, let’s take a look at the daily.

Interestingly, Ben’s announcement doesn’t show up so clearly on this daily chart. That’s because, in the scheme of things, it was just a day. And we’ve had plenty of other 2 or 3% days over the past year.

But what should we expect in light of this chart? Remember how we examined RSI for oversold and overbought conditions. Again, the green bands represent overbuying and the blue overselling. However, note that gold can enter into overbought territory and actually surge ahead before retreating appreciably.  And we see this on the longer term charts as well.

One of the most interesting things to note on this chart is what happened last February. As we can see by looking at both the RSI and MACD, overbought conditions reached a peak at the beginning of February. However, even as the markets surged from a small pullback, MACD didn’t reach the highs of early in the month. But when this market reached the breaking point, it all rolled over hard, resulting in a multi-month consolidation into late May.

By mid-May oversold conditions began to develop. Remember, this is a daily chart. These conditions can change very quickly and with little movement, unlike our longer term charts. Not again that the deepest part of the MACD did not represent the deepest price. It merely marked the beginning of a turning point in sentiment, with some lag in its development.

So, what do we see today? As you can see, the daily chart is indicating the most overbought conditions we’ve seen in over a year. While this does not point to an imminent crash, it does portend at least a short-term contraction. But remember, it’s entirely possible that we only have a short contraction that relieves the tension in the technical and results in higher gold prices.

I’ll leave you with the weekly to ponder as we finish the day. Tomorrow we’ll discuss this and begin examining the longer term outlook.

For your prosperity,

J. Keith Johnson
The Gold Informant