Gold was crushed this week.
The shiny metal was $1,900 an ounce on Monday. It traded yesterday at $1,775.
All of the gains from the past six weeks have been wiped out. The price of gold is negative for the year… It’s back down to where it was at the low last December.
On Monday, I pointed to the bullish setup in the U.S. dollar and suggested a bouncing buck might cause the gold rally to stall for a bit. But, I wasn’t expecting gold to get monkey hammered for $125 in just a few days.
And, I sure didn’t expect to be telling folks to buy gold this week…
But, that’s what I’m doing – because it almost always pays off to buy gold when it reaches extremely oversold conditions. Gold hasn’t been this oversold since the pandemic-inspired selloff in March of 2020.
Take a look at this chart of SPDR Gold Shares (GLD) – the ETF that tracks the price of gold – along with the Commodity Channel Index (CCI)…
The CCI is a momentum indicator that helps to measure overbought and oversold conditions. Typically, for GLD, readings above 200 indicate extremely overbought conditions. And, readings below -200 are extremely oversold.
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The red dotted lines show each time, over the past two years, when gold reached extremely oversold levels on the CCI. In almost every instance, GLD made at least a short-term bottom and traded higher within a few days.
In some cases – like late March of 2021 and mid-March of 2020 – gold rallied for several weeks.
The CCI indicator for GLD reached -355 yesterday. That’s the most oversold gold has been on this chart. In fact, it’s the most oversold condition we’ve seen in the past seven years. Buying gold into this sort of condition often proves profitable.
There aren’t any guarantees, of course. The price of gold could still fall further from here. Anything is possible.
But, this week’s decline in the price of gold looks to me like one of the best buying opportunities we’ll have this year.
Best regards and good trading,
Jeff Clark
P.S. Not only does my colleague Eoin Treacy provide market analysis in his weekly essays, but he also gives his additional thoughts in his video segments.
So far, he’s discussed inflation, bitcoin, oil, and more. Today, he’s sharing more on what’s been going on this week. So, click down below to hear Eoin’s thoughts.
Eoin’s Insights
Happy Friday Market Minute readers. Today, I’m sharing another one of my short videos on what I currently see happening in the markets.
So now, I’ll be giving my thoughts on what the Fed said on Wednesday, where the dollar is moving, and the recent dip in gold. Just click below to watch.
Reader Mailbag
In today’s mailbag, Jeff Clark Trader member Andy gives his thoughts on Eric’s essay about real interest rates and inflation…
Sure, the real interest rate and inflation expectations will have an effect on metals prices. But ultimately the bankers at JP Morgan will control the price by blatant manipulation – why is the SEC in collusion to the detriment of a free and fair market?
Let’s get past Basel III, and if nothing happens, then I’ll sell out of my mining stocks. Keep up the great work you do.
– Andy
Thank you, as always, for your thoughtful comments. We look forward to reading them every day.
Keep them coming – and send us any questions – at [email protected].