Is Gold In for a Bumpy Ride?


Here’s the 3-month chart of GLD.  Quite a run-up there!

GE 2019-09-09 GLD 3mo.jpg


And here’s the 5-day chart of GLD, showing the action on US markets for both intraday and extended hour trading.

GE 2019-09-09 GLD 5d.jpg


The sudden drop followed directly on the “announcement” of trade talks between the US and China. We use the term announcement loosely here, as tweets, rumors, and unsubstantiated beliefs all seem to count as proper news these days. Whatever happened, investors and traders reacted as if taxes had suddenly been eliminated. Stocks and other equities took off, safe haven trades plunged, and money shuffled around like a good old Monopoly game with your 12-year-old niece. (Whom we will admit was one of the best Monopoly players we ever saw.)

Of course, it was shortly discovered that the actual tariff schedules themselves hadn’t changed yet, and in fact, were increased on the US side later in the day. But US humans don’t seem terribly interested in realities right now, so reality is becoming a more distant concept. It’s perception that matters, doncha know, and it sure does move the market so there is something to it.

But if resistance levels are set by perception, then support levels are set by realities. Gold dropped down to bounce off 1500 late Thursday afternoon, recovered for Friday morning, then dropped to test 1500 again. Keeping in mind that these prices are in US Dollars – not a strong currency in absolute terms, but the strongest big one comparatively at the moment – it’s not surprising that the price of gold in USD dropped during the money-shuffling game.

In absolute terms, gold is still at or near all-time highs in many currencies around the world. And gold prices are “high” in all currencies, thanks to the real problems of sky-high debt levels and no plans to pay them off any time soon.  As long as those conditions persist we’ll keep playing this confidence game – gold will drop in moments of exuberance, then rise as the sugar rush fades and reality creeps back in.

This is why “buy the dip” works as an entry strategy.  You haven’t missed the train, you just get in at a later station for the next leg up.  Any spot on the chart labeled “dip” will do. We’re still far from the 2011 high, if you want or need a proper destination for the gold price trip. Though we suspect this train’s real destination is far higher.

So we’re sticking with our original view from a few years ago. We see no end in sight for gold yet, but it will be a bumpy ride up.


The Gold Enthusiast

DISCLAIMER: The author has no position in any mentioned security.  The author is long the gold sector via positions in NUGT, JNUG, a few junior miners, and covered calls on parts of the NUGT and JNUG positions. The author is watching for entry points for new options and stock trades as outlined in the article.

The SPDR Gold Shares (GLD) rose $0.55 (+0.39%) in premarket trading Monday. Year-to-date, GLD has gained 15.38%, versus a 12.59% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 33 ETFs in the Precious Metals ETFs category.

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About the Author: Mike Hammer

Mike HammerFor 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.

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