Exactly a year ago, I wrote a blog providing a long termed view on the outlook for gold – it was entitled “Ignore gold’s trend at your own peril”. I suggest you take a look at the long termed chart that I posted on that blog. It shows the relationship between gold and the S&P 500. As I noted on the blog, it just aint gonna be pretty for gold investors over the long run. I also wrote a bearish article on gold in my regular Investors Digest column around that time – the flack I got from a resident gold bug who writes for the paper was humorous. As I noted, all I want to do is make a correct trade through trend identification—I am not interested in thematic stories as to why any particular investment “should” go up.
Long termed trends aside, I’ve followed gold over the past year in search for short termed trading opportunities. I don’t mind trading a counter-trend rally, even in a downtrend. There really haven’t been any such opportunities – in each blog (March and July of this year)—I noted that it needed to break its lid – marked by the top green line near $1400. Twice that resistance failed, gold never did break to the upside it needed to create an opportunity, so the trade was never available.
Some readers of this blog may be wondering if gold is currently presenting a short termed trading opportunity. To answer that question- I’ll ask you to review the blue support line at the bottom of the chart above, and the break of that support line by gold.
Gold is still an ugly picture. Despite the ever-present potential for an oversold bounce on any bearish security, you will want to avoid this trade. If gold breaks above $1200 and holds for at least a couple of weeks, you might revisit the potential for a trade. The current target looks to be around $1000 if gold does not move up through $1200 quickly. I am not holding my breath while waiting for that to happen.
Keith on BNN this Friday November 7, 2014 at 6:00pm
Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to email@example.com