By Jeff Pierce

After last weeks plunge in gold prices I expect a little more upside near the $1639 level before this starts it’s final leg down to the $1400 level. And when you check out the monthly chart below a drop of $200 is nothing.. (nooothing) when you compare the move it has had for all of 2000. I personally would like to see it drop even further as the more fear that happens when this drop the better.

When the monthly RSI gets to 40 start to watch for signs of support on the chart…and buy into that fear. I warn you it will be difficult as everyone will be declaring the gold bull market over. My analysis suggests that anybody buying now will be underwater very soon, but a great long term buying opportunity in gold could be a few months away.

Trading bias – I would either be short or neutral looking to add to shorts in the coming days to weeks. I would not be long gold right now as there is too much risk to the downside.


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6 Responses to “Patience Will Reward Gold Bugs In Coming Months”

  1. JD Says:

    Nice note and I agree – timing it perfectly might be a bit hard. So we end up being early to the big move or slightly late after the move starts. The RSI should give that clue and you make a great point – the chorus screaming on the “end of the gold bull market” will be big. But that will be the time to act. Blood on the streets time. Good sensible strategy. Implementation, I feel might be a bit more difficult.

  2. Danny Says:

    Hi Jeff,
    I came to very similar conclusion on my blog last week.
    On the monthly chart, we could drop to $1400 or even $1100 and gold would still be in a long term uptrend.
    Even for an investor who believes that gold will go to $3000 next, there is no good reason to buy now at $1620. The risk of a further drop to 1400 is there, and only a rise above $1700 would tell us that the drop is probably over. So, it’s smarter to wait and buy on a break above 1700 (or even 1800), because that’s safer and leaves only a small portion of the potential profits on the table.
    But if everybody waits for that to happen, then who will be there to push it above $1700?
    If the current bounce doesn’t get follow through, then it could go down faster than we think.
    I am looking to buy some GLD puts by the end of the week.

  3. jeff pierce Says:

    we’ll have to see what sentiment is like when it gets there. there will also be some sort of macro catalyst that may trigger it, so that will need to be factored as well.

    for those who are flat with no trading bias it will definitely be easier to recognize the panic selling when it gets here. I feel pretty confident that 1400 will be a bottom, but like I said, anything under that level should be good so maybe starting initial positions small and adding at $1300, $1200, or even $1100 would be wise.

  4. Danny Says:

    Yes. And perhaps it’s good to note that at 1400 or lower, even investors who are not wildly bullish on gold may start to buy some. Because even if gold peaked already at 1900, we are likely to get at least a rebound from whatever bottom level is found. Doing some scaled buying near the bottom is then a good approach.
    Not sure if much of a catalyst will be needed. If the stock market picks up again, it may prompt small investors to unload their gold (stocks) and buy whatever is going up at the moment. We have seen that movie before ;-)

  5. Lingzi Says:

    Hi Jeff, What do you think of Silver, what is your downside target on silver if Gold goes down to 1400? thanks

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