Why gold has made a significant move and the real question... potential upside and downside

Using GLD ETF as a proxy for Gold analysis mainly because using XGLD which is the gold index there is a lack of data for shorter term charts.

The reason the current move was significant is that we closed above that key level of resistance which was for spot around 1367 to 1369.  This was resistance 4 days in a row, resulting in significant volatility gaps up and down.   Today gold closed above at 1370 and is holding currently.

Looking for the next target in price, one would expect to see resistance at  1384 which is the 61.8% level from the previous high to low which is around the next level of resistance coming from the Jan 13th levels.  However, one would expect 50 MA which is within a couple of dollars to show resistance which it did today as prices pulled back from the days highs.  And Bollinger band at 1377  which was the top today.


So lets look at IMG.TO and YRI.TO options at 21 strike and 12 strike respectively.

Huge gain today, however, time is running out as the expiration date is this Friday.  Therefore, I am expecting to get out as soon as possible based on the potential gain over the next few days.  Most recent high is at 21.32 and bollinger band top is at 21.43.

To expect another 3-4% jump is hard to rationalize. However a 42 cent gain over 3 days which is only a 2% gain is a more fair expectation.

 
With a 12 strike, this is a similar situation with IMG.TO.  My expectation is that the price will find resistance at 12.23, hence the need to off load these options within the next couple of days.

Best case scenario, gold continues up tomorrow these gold companies may have additional pops.
Gold looks like a move to 1400-1410 is likely then an additional correction before the next "leg" up in the relentless bull rally. 

S&P500 ran in to some resistance, however the market appears to be endlessly up, despite obvious flaws with fundamental valuation.  The only way I can rationalize current prices is inflation.  Take a look at the dollar index and see the pounding of the dollar which represents a loss in relative buying power.  Therefore companies are worth more dollars but those dollars are less valuable.

Where did the resistance come into today?  the purple line, below shows you where that purple line came from.  It is the top of a Andrew's pitchfork looking back years.

As the price action is staying above major moving averages it is hard to say this is the end, remember POMO (the daily operations for QE2) have been helping fuel this "melt up" as the end is near the real question is what happens when the free money stops flowing.  What type of correction could be expected?  on the flip side, what if they announce QE3, how high could the stock market go?