(Kitco News) - Momentum in the gold market has reached almost parabolic proportion Monday, as a major target at $1,200 was reached in intra-day trading.
Defying all expectations, Comex April gold futures have started the week on a strong note, surging more than 3.5% to hit an intra-day high of $1,201.40 an ounce. Prices have managed to hold on to most of the gains, with April gold settling the session at $1,197.90 an ounce.
The question is just how high can prices go?
“Right now it is all about the U.S. dollar,” said Bill Baruch, senior commodity broker at iitrader.com. “The U.S. dollar is falling, U.S. treasury yields are falling that that is making gold an attractive investment.”
Baruch added, that with gold blowing through the important technical level of $1,180 an ounce, is an indication that the market is seeing significant momentum and there is potential for prices to run to $1,230 an ounce in the near-term.
However, Baruch added that investors should be cautious about chasing the market higher. He added there should be other opportunities to get into the gold market.
“We are testing some overbought levels but after a move like we have seen today, in this market, you just can’t pick a top,” he said. ““At this points $1,140 represents a tremendous support level. Any pull back to above $1,140 could be seen as a buying opportunity.”
Sean Lusk, director of commercial hedging at Walsh Trading, said that he sees potential for gold to hit his target at $1,228 an ounce in the near-term. He noted that Monday’s move was accompanied by higher open interest and higher volume. “It appears that nobody is worried about buying at higher prices today,” he said.
But the market is not without its risks. Lusk said that Fed Chair Janet Yellen will be testifying before Congress Wednesday and Thursday, which represents significant risk for the market.
“If [Yellen] comes out and is clearly dovish, I think equity markets could stabilize and that could deflate this gold rally,” he said. “If her statement is unclear then I think more money will pour into gold.”
Jim Wyckoff, senior technical analyst at Kitco.com said that he sees potential for gold to test resistance at $1,208 an ounce and a break of that could lead to a push towards $1,132 an ounce.
Phil Streible, senior market strategist at RJO Futures, sees a lot of potential in the market, with $1,300 an ounce as an achievable target in the near-term, “especially if equity markets continue to fall.” However, he also warned that the gold market can be extremely volatility.
“There is a saying that markets fall 3-times faster than they rise, so this could mean we could see a $50 fall in gold if this rally fades,” he said.
Streible suggested investors could use a put option to help hedge against lower prices at these levels.
Streible isn’t the only one that sees the potential for $1,300 gold in the near-term. Daren Newsom, senior analyst at Telvent DTN, said that if gold can close above $1,200 an ounce on a monthly basis then his next target for gold would be $1,338, which is a significant Fibonacci retracement level from the September 2011 peak to the multi-year low seen in December.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C
