Gold price surges to seven-year high

New York (Jan 7)  On Monday, the big rally in gold continued, pushing gold to seven-year highs before it gave back half of its earlier gains. Silver continues to lag gold although it also rallying; the ration between the two is rising towards 90-1. The gold/silver ratio suggests a sell-off in gold or a rally in silver is near.

Gold is in a bullish pattern and certainly should continue higher; however, the rate of change has been too extreme. Gold should sell off 3%-5% before it resumes the rally. Silver is once again at a key level; it will break out to the upside or fail.

We are long both at these levels but expect a pullback in gold and a breakout in silver. The gold/silver ratio should narrow, which can be accomplished by a sell-off in gold and a rally in silver. Whether silver rallies or stays flat, gold should pull back to the $1,530-$1,540 level before making another rally attempt.

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