Gold Downtrend Confirmed
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Gold hit 4-month lows today on heavy selling, which is something I’ve been expecting based on price action as a function of time. The violation of $1320 to the downside signifies a change in trend is upon us. Short-term moving averages are turning down. I am going to sit on my hands until we: 1) recapture $1320, and 2) recapture $1350.
These corrections tend to drag out longer than people expect, so it is very important to be patient. For quite some time, I have not been too comfortable stepping in on the long side except for very short-term trades. I warned before the start of the year that I didn’t think it was time to be too aggressive on the long side. I did not chase gold as it retested its highs. Right now the tape is weak, and one must respect what the tape is saying. In the long run these prices are cheap, but it’s still too early to step in. Short-term losses can really build with badly timed trades.
Take this correction as a test to see what you have learned from investing in gold. Can you sit on your hands in the early stages of the correction when it appears that gold is presenting value? In the latter stages of the correction when everyone is panicking, can you go against the grain and buy? Can you ignore all the news stories that will be calling the end of the gold “bubble” and focus on long-term value? If you can do these things, you are starting to think like the smart money.
Look at the chart above. How can anyone say this price action is reflective of a bubble? Claims of this kind are truly baffling. No bubble I’ve ever studied ends when the public at large is still sleeping. No bubble I’ve ever studied ends when the most successful investor of the past 5 years (John Paulson) has troubling raising capital for a gold fund. The burden of proof is on the gold bears to tell us why “this time is different.”
If your investing time frame is at least 3-5 years, you should be viewing this correction as a gift. The time will come to scale into positions before the next rocket launch higher. I hope you all can pull the trigger when the time comes.
