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There are many names being assigned to what is happening with gold bullion right now. There is an argument that gold is blowing off in a parabolic manner, not unlike the Nasdaq in 2000. There are also gold bugs bulls who insist that gold is merely short-term overbought, but still headed much, much higher.
A few thoughts from my vantage point:
- No one knows for sure if gold is actually blowing off at the end of a multi-year bull run and making a MAJOR top.
- If gold is going truly parabolic here, then it can go MUCH MUCH HIGHER before the bubble bursts, which means that there is significant risk to shorting gold here without a sound exit strategy to the trade.
- A look at a zoomed out weekly chart below of GLD tells me that the angle of ascent has clearly changed and is now essentially up in a straight line.
- Putting on a long swing trade here in gold is not a high probability idea, and offers a terrible risk/reward profile, with the risk of a quick and fierce reversal too high.
- In light of these points, swing traders should probably take a hands off approach to gold for now. Again, if you choose to short it, have a clear stop-loss price in mind as a further move higher is a distinct possibility.
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I could not have said it better!
I think I’m going to bookmark this post and force myself to read it again every time I get this misguided notion of trying to trade gold in this market.
Down 20 pct on a tiny DZZ position. Going to sit on hands and try to catch the knife again. I might make it out of this trade yet.
Chess – been following you for quite a while without commenting – big fan of your work – the movie ideas as well. Too cheap to join PPT, additionally, not really all that active in my trading. You had mentioned a few silver miners over the weekend with solid bases, now begining to break higher as potential longs. You clearly have your finger on the pulse of the silver/gold trade – respecting the action. Did have a specific question on GSS – a name I added (small size) recently from the FLY’s posts. Been in a steady decline recently, chunked the most recent qtr, dramatic underperformer during this recent gold bull run. Dramatic intra-day reversal last week on good volume. Looked like an ideal “Chess” set up – nice potential catch up trade too as it has lagged peers recently. Own small and looking to take a larger position. Big mover today futher peeking my interest. While they are a “high cost” producer – this is a gold miner with a decent balance sheet down 50% year to date!
Thanks…Nice hammer on GSS and upside this week. Still some resistance above so I expect it to be choppy but the lows look good.
Keep up the good work. Not sure who the recent “rant” was direct at – but in my mind your record has and will continue to speak for itself….