Long time readers know I’ve been keeping you updated on the progress of gold prices. Let me begin by restating something from a previous article:
A client recently asked me if gold was a buy here or not, and she didn’t like my reply. I said, “What’s your plan?”
She said, “I didn’t ask you about a plan, I asked about…”
“I know what you asked. And I ask you if you have a plan,” I replied.
She scratched her head, and I explained…
See, whether gold is a buy here or not depends on how you’re viewing gold. Are you looking to trade it for a quick profit or are you looking to own it as a security, insurance, and a hedge against inflation for the longer term, a bit like how you own real estate? The answer to this question depends on your goals, and your overall plan.
So answer that for yourself first, and with that in mind, let’s take a look at what’s happening in the precious metals world…
So, in a world of misinformation, stupidity, and lies, let’s cut through it all and let the market itself do the talking. Here’s the long term for the proxy for gold, GLD (the curvy blue line is the average price over time):
As I commented recently, GLD had a nice potential set up there if could have got up past $130, and this is why we wait for certain events to happen before diving in- GLD didn’t use that opportunity and has instead turned down aggressively, where it sits right on its support level, at an important inflection point…
The first thing to say is that this is not a chart that’s appealing- do not buy gold (or gold miners) here, for sure. The price is well below its flat long term average and pointing lower. In fact, if you were trading gold (as opposed to holding the metal for the long term as you would real estate), you would decidedly get out of this trade if it so much as flinches below $115, and live to ride the gold market another day.
What’s the upside scenario? Simply this: GLD must do an immediate U-turn from here or at least level off, staying above $115. The best-case scenario is that this latest dip forms the third big bounce that begun in July 2013 and forms a ‘triple-bottom’/inverse head-and-shoulders pattern. That being the case, we’re back to square one: like I’ve said all along, I want to see GLD rise comfortably above $130 before I consider making this metal a BUY.
The author has an interest in the securities discussed in this article. Source of charts: stockcharts.com
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