Short-term pain in the gold market should lead to long-term gains.
Earlier this month, I wrote an essay explaining why gold was likely to end 2018 quite a bit higher than where it is right now. Though, I also argued that the price of the yellow metal could work slightly lower over the next few weeks.
Well, here we are. Almost two weeks later, and the price of gold has dipped a bit from earlier this month. And it looks like that short-term decline is about to accelerate.
Take a look at this daily chart of the price of gold…
There are a couple of bearish developments on this chart. First off, the action so far in 2018 has the look of a “descending triangle” pattern. The pattern occurs when a stock bounces several times off of support, but each bounce forms a lower high. Most of the time, support eventually fails to hold and the stock breaks down.
In this case, if gold breaks below support at about $1,305 an ounce, then look for a move down to the next support line near $1,290.
The second bearish development on this chart is that the 9-day exponential moving average (the thin red line) has recently fallen below the 50-day moving average (the thin blue line). This “bearish cross” has led to a lower gold price the past three times it occurred in 2017.
None of this changes the longer-term bullish setup I wrote about earlier this month. In fact, we figured gold may be in for some short-term weakness. Here’s what I wrote back then…
There is room for gold to work slightly lower over the next few weeks. The price could decline to the rising support line at about $1,285 – which lines up well with the 50-week moving average.
A short-term decline over the next week or two – perhaps in reaction to next week’s Federal Open Market Committee (FOMC) announcement on interest rates – would allow this short-term bearish pattern on the daily chart to play out, while keeping intact the longer-term bullish ascending triangle pattern on the weekly chart.
In other words, a quick decline in the price of gold – down to about the $1,290 level – would be an excellent buying opportunity for later this year.
Best regards and good trading,
Today, some thoughts on the gold market…
After your Delta Direct post on gold and silver, I sold all I had and you made the right call. Interesting to see how this plays out. I still think the metals will rally yet this year but it is a timing event. Thanks Jeff.
And a few comments on Tuesday’s essay, “This Comment Hit Me Hard”…
Jeff, I’m relative new to your service and am very pleased. Some are too uneducated about trading in general to recognize sound advice. Keep up the good work and thanks.
Thank you very much for this email and of course all your letters online. Even though I don’t have the funds to get involved just yet, I will hopefully get cranking sometime soon. Just from an outside look (not as a trader yet) your advice and recommendations seems to me to be sensational! I too realize that you cannot pick all winners – as if trying to pick a winning race horse. However, your advice and expertise gives us all a far better bet than punters could possible hope for. Well done again, Jeff, and keep up the good work. I mean it sincerely. Best regards.
Tell Mark to put HIS money where his MOUTH is and increase his LOT size. Jeff’s job is tech analysis and to recommend high-probability trades. Mark’s job is money management and to have enough faith to step up to the plate and lean into the pitch when you swing the bat.
Thank you, as always, for your kind words and thoughtful suggestions. Please keep sending them right here.