Taking profits on gold

October 4, 20128 Comments

I love to sell when the world is in love with an investment theme. And I love to buy when an sector is oversold and out of favor. Gold was out of favor in the summer. I recommended readers of this blog consider adding some of the precious metal when it was trading in the mid-1500’s, as I did for the portfolios I manage. Gold was out of favor at the time, and at the bottom of a right-angled triangle formation. Now, gold is the investors love-child again. Thematic investors are touting gold (you know the themes: it’s the great hedge against inflation, it’s going to replace world currencies, there’s only so much of it out there, yada, yada, yada). I just sold my gold. I’m out. Sure, it could go higher, but the risk/reward is less appealing to me right now. The chart below spells out that risk/reward scenario quite well. I took a profit, and a bird in the hand…you know the saying.

 

Gold is approaching significant resistance at $1800 that was met in November of last year and March of this year. There will be selling pressure at $1800. Further, gold can be seasonally weak in October. Mind you, it can also pick up again in November and stay strong until February before a longer termed seasonally weak period ensues to the summer. This pattern, by the way, comes courtesy of the research of seasonal charting guru Jon Vialoux and his wonderful website www.equityclock.com.  It’s overbought on the daily and weekly stochastic oscillator to boot. So, we have seasonal weakness, technical resistance and overbought momentum. All in, gold has more risk potential than reward potential at this time. I may re-enter gold in November if the chart looks good at that time.

BTW–I’m out of  oil, too. As illustrated by the US Oil fund, it’s broken below its 50 day MA after finding resistance at its 200 day MA. Seasonally it’s not the best time of the year to be in that sector, and there may be better places to be.

Keith on BNN

I’m on BNN MarketCall tomorrow (Friday evening) at 6pm with host Mark Bunting. Feel free to call with difficult questions, but only if they pertain to technical analysis!

Keith at The Toronto MoneyShow

I’ll be speaking about investing for income without losing your shirt at the Toronto MoneyShow on Thursday October 18th at 3:45pm. In previous years, you had to pay for admission to the show, but by following the link below, you can get free tickets. What’s the catch? I don’t know—perhaps it’s that you have to listen to guys like me talk about financial markets. Fun!  It’s a ying and yang kind of thing.

 

8 Comments

  • While looking at the chart of gold what is your opinion on silver for a trade.

    Reply
    • Silver can be a bit weak in October like gold–I’m waiting on the sidelines before re-entering any of the precious metals–I’ll be looking again in another few weeks if the price drops enought–will try to post a sector comment on SLV this week

      Reply
    • Steve–I own the Brookfield Infrastructure shares BIP.Un–bought it a year ago in the mid-$20’s

      Reply
  • I wanted to say thanks for answering my question regarding silver.

    All the best
    Kevin

    Reply

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