Monday saw the price of gold drop down to its lowest level since 2010, but it could be just the beginning of something much bigger.
Stop-loss selling and what could be described as thin market conditions came together to push the price of gold down to $1,087 an ounce, and possibly just triggered a brand new pattern that could easily force the precious metal’s bottom to fall out.
But instead of panicking, why not just make some big gains from it?
Anytime the price of something falls significantly, you should immediately ask yourself a very simple question: “Is this security now cheap, or is it a trap?”
Many investors and traders are bargain hunters of sorts. So as soon as they see a price drop, they rush to it because they see it as a discount. But that’s definitely not always the case…
When a price experiences a heavy down day, it could be the result of 1 of 3 things most of the time:
1. It’s a one-off consequence of an isolated incident, such as an earnings report or natural disaster.
2. It’s a healthy pullback that should cause the security in question to climb higher or maintain current price levels.
3. It’s a big clue that the security in question is very sick and is about to crash down to low, low prices.
So what’s happening to gold right now?
Let’s take a look at the SPDR Gold Shares exchange-traded fund (GLD) to see a visual representation of gold (thanks to Stockcharts.com):
You can clearly see the downward trend of gold just by taking a quick look at the above chart. What’s more important is the fact that this chart goes all the way back to early 2013, and the current price is nowhere near the levels it was at back then.
Now look one more time at the same chart with my markings on it:
This chart now looks much more troubling for gold investors. Until this week, there was a clear line of support for gold that held the price up above the $110 mark.
But a quick dip below that line could cause something much worse than your average price drop: fear.
Fear is now the fuel that has the potential to pull gold down to scary prices for gold owners. But that also opens up opportunities to profit from gold.
And the best strategy to make the most profit from gold will be one of the major topics of next month’s issue of Midas Premium.
