I made a lot of money on gold’s massive run from 2008 to 2011. Unfortunately, I unnecessarily gave much of it back because I had not yet been introduced to technical analysis. Technical analysis of price action allows you to identify and trade along with trends. Without this knowledge, you are essentially trading blind. You might as well be gambling.
Gold peaked in 2011, went sideways in 2012 and started heading lower in 2013. It’s been trending down ever since, going from a high of nearly $1,900 an ounce in late 2012 to a low of $1,045 in December of last year.
There is no compelling reason to buy (or even own) something in a downtrend if you are trying to make money. Sure, you could happen to buy in at the exact bottom by pure luck, but do you really want the success of your trades to be reliant on luck? Trying to pick exact bottoms and tops is a fool’s game.
It’s much smarter to put the odds in your favor BEFORE risking your hard-earned money. If buyers are gaining control of an asset over sellers we WILL see it in the price action. That’s our cue to start paying closer attention. Don’t worry, there’s usually plenty of meat in the middle of a move for us to profit on.
We are starting to see signs that the down trend in gold is possibly coming to an end. Gold is up 16% year to date, breaking the down trend line of lower highs for the last two years. Price is well above the 50 week and 200 day moving averages, both of which are starting to turn up.
Gold is currently extended to the upside. With the possible exception of buying physical coins as “insurance”, I would not chase it here. However, I believe consolidations above the 200 day moving average are buyable for a trade. Watch $GLD, $GDX and $GDXJ for low risk 821x buy signals.
It may finally be time to take gold out of the penalty box and start keeping a closer eye on it.