LunaticTrader

Investing with the Moon

Is this the bottom for gold?

Posted by Danny on June 25, 2013

For our most recent coverage on gold see Prospects for gold
It is by now clear that scenario 1 is out of the way, so we can revisit scenario 2 and 3, which pointed to possible downside targets of $1080 and $1260.
Since gold is now sitting just above $1260, that scenario deserves more attention until proven otherwise.

Let’s take a look what gold has done since peaking just above $1900 in September 2011 (click for larger images):

gold peak 2011

Here we see how gold dropped $410 in four months, and…

gold drop 2013

… then it went sideways for thirteen months, only to drop another $400 in four months.
It is now holding just above $1260, after touching a low of $1268 a few days ago. Based on the trend lines we can also see this level is likely to offer support.

We can see where this $1260 level comes from in this longer term weekly chart (click for larger image):

gold weekly

There was a double top at $1240 and $1260 in 2009-2010, just before gold took off towards $1900.
We can also see that this eyes more like a completed correction now, with prices having fallen back to a major trendline. If gold is still in an ongoing long term bull market, then this is potentially a very good point for the next leg upwards to start. The other candidate is around $1100 on the somewhat lower trendline, but I am not sure that is going to happen as so many analysts seem to be waiting for a drop to $1100.

At this point I would do some buying near $1260, or buy some gold stocks, and keep them with a stop-loss just under $1240. That’s risking 2% with the potential of gaining quite a bit more. Even if gold is in a long term bear market it is quite likely that we would see a 10% rebound off this support level.

Good luck,
Danny

 

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3 Responses to “Is this the bottom for gold?”

  1. Danny said

    Down to $1230 as we speak, so unless gold rebounds and closes back above 1250 today, I think this scenario is also off the table.
    We can now set sights on $1080.
    This is why it is important to use a tight stop-loss when you try to catch falling knives.

  2. scottycj1 said

    SPECIAL REPORT—THE COMING MELTDOWN
    More info at http://www.markethighsandlows.wordpress.com
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