As of today, gold sits at $924, having failed to break decisively above $1000. Obviously a surge above this level can’t be ruled out, but historically gold’s best price action often comes in the first quarter of the year so there may be a long wait for the next leg up.

Another consideration is that stocks and other riskier assets have shown some strength of late. Part of gold’s appeal in recent months has been its safe haven aspect, so as market participants start to become less risk-averse gold could struggle to breakout.

It seems more likely that gold will consolidate within a broad range of $700 to $1000 until it becomes clear to the market that monetary reflation through concerted quantitative easing is really starting to take hold.

On the plus side, as other countries continue to compete to devalue their currencies, gold should stay the overall winner. On the negative side, there may be further global deflationary scares to come which could push gold down again like in October last year along with everything else.

Spot gold is currently close to breaking through the $1000 dollar barrier once more. This is happening at the same time as the DOW industrials closed below their November 2008 lowest close, and also below 50% of the 1982-2009 bull run.

Silver has also caught up much of its lost ground last year, now trading above $14. Our models suggest continued strength in the precious metals compared to other asset classes, but a short-term fail to break last year’s high in gold is a possible risk.

Spot gold is touching up against the downward trendline in place since March 2008. Look to add a long gold position on a break of this trendline, and confirmation break above the most recent swing high at 931.

More economic bad news could prevent a sustained breakout. Until it is clear that monetary reflation is working, gold could sit within a broad trading range.