Gold price explodes overnight

New York (Jan 8)  On Tuesday night, gold and silver exploded higher on the bombings and other geopolitical news. Gold traded as high as $1,613 and silver as high as $18.90 before what looks like a substantial pullback. It is 4:30 a.m. EST and gold has given back 3% of its gains so far and could close lower on the day.

Markets are driven by fear, fundamentals or technicals. Huge rallies based on fear, which usually create a massive blow-off as we witnessed overnight, usually signal the top or the bottom of a major move. Considering the metals were in the middle of a big rally before last night’s action, the overnight blow-off more likely put in a market top for now.

To give full disclosure, we are long gold and silver; however, we did sell some overnight and are looking for a spot to short, based on our algorithms. For now, our expectations are that the metals should see a reasonable sell-off of another 5%-6% from where it is trading right now. In other words, we would not be surprised to see a pullback to the $1,500 -$1,520 level.

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