Without question, gold has been in a secular bull market. As is usually the case during those long-term periods of appreciation, hindsight dictates that the best time to buy is when the asset in question looks ready to break down. In other words, buy ’em up when they look ugliest. Put your beer goggles on and bust a move, if you will. Much like a chess player sacrificing too many pieces in order to gain a tactical advantage in position on the board, though, eventually that strategy proves to trap the trapper.
Using the GLD ETF as a proxy for the yellow metal, we are once again at one of those defining moments where either the frog will turn into a bull, or the ultimate trap will have been set lure in ardent gold bugs. With both a declining 50 and 200 day moving average, coupled a surprising lack of traders looking to short gold here, I would not be surprised to see downside resolution to the massive descending triangle outlined below. You will note that gold topped out in 2011 a few months after silver saw its spectacular blow-off top and subsequent crash. Beyond that, I would argue the conventional wisdom is that easy monetary policy around the world is a given and automatically equals higher gold. Just as the notion of an inevitable demise in the U.S. Dollar seems like a foregone conclusion, so too does the idea that gold simply must go higher.
The best course of action here, to my eye, is to have a well-defined plan. Regardless of how many gold bugs can repeat the phrase “printing press” before stuttering over themselves, if GLD loses $148 with a thrust of selling volume then the trappers may have finally been trapped. I would consider the bearish thesis to be incorrect if the bulls can plow up through $165 on strong volume, though the declining 200 day moving is likely to at least cause turbulence in the coming weeks.
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I’ve been going back and forth about gold. But that’s a really logical way to proceed – short a breakdown or buy a breakout of that well defined triangle. Thanks!
Spot on. It is in no mans land at the moment await the break.
GLD and miners look ripe here, agreed. LMFAO about beer goggles and busting a move. Another good chessnwine read, thanks!
“..coupled with a surprising lack of traders looking to short gold here..”
ChessN are you sure about that? I call your attn to the most recent Hulbert HGNSI readings, and the most recent interpretive article.
http://online.barrons.com/article/SB50001424053111904470204577454733195233296.html
It’s dated June 8, so is still quite current. For those who do not wish to click the link, the gist of the conclusion is, “Gold’s recent weakness in the face of favorable sentiment conditions is extremely rare — so rare as to be the exception that proves the rule. In fact, there has been only one other time over the last three decades when bullion performed as poorly in the wake of bullish-sentiment conditions. And it soon thereafter rebounded smartly.”
I don’t have any opinion on whether the Gold Advisor Newsletter commitment to long or short gold is best measured by Mr. Hulbert’s metrics. I just happened to stumble on the Barron’s article, and so am sharing it with you and the other readers.
The latest incarnation of Euro-Bond salvation has an interesting Gold component — (CNBC) any debt over 60% GDP will be sovereign responsibility but backed by Gold collateral. If that pans out — and it seems to be gaining traction in Germany — then Gold will be an interesting play.
Based on that report, I snagged a small starter position in a Canadian miner — NGD up 4% — so there are probably others thinking the same way.
Jake’s going to be pissed at you 🙂
IMO, shorting breakdowns or buying breakouts hasn’t worked very well recently. Instead of $148, one could have just as easily draw resistance/support at around $155 – in which case two breakdowns only went down a bit before being bought. I predict the pattern we’re seeing will fail and another will replace it.
Daniel is correct; the Hulbert gold sentiment index has been negative forever, it seems, which is really rare, and has always ben followed by rallies. Possibly this time is different?
But as a gold investor, I have two conflicting issues to consider: the market feels quite different, really weak, which is bad; but the top in late 2011 didn’t behave at all like any other bubble popping I’ve studied, which is good. My solution has been to buy puts, and constantly replace expired ones, which means I’m slowly bleeding to death.