The price of gold got crushed this week. So, I’m buying it.

Gold started the week at $1,960 per ounce. It closed Wednesday near $1,860. That’s a pretty hard hit. And, it likely shook out all of the “weak hands” just before gold mounts a year-end rally.

Let me explain…

The fundamental reason for owning gold is still as strong as ever…

Federal Reserve Chairman Jerome Powell announced last week the U.S. Central Bank will likely keep short-term interest rates near zero percent until 2023. That’s bullish for gold.

The U.S. budget deficit is likely to be greater than $3 trillion this year. Heck, it could hit $6 trillion if the government grants any additional stimulus packages. That’s bullish for gold.

The Bank of England is considering the possibility of negative interest rates. That’s bullish for gold.

And, the upcoming U.S. election is almost certain to create the sort of chaotic environment that pushes investors into the perceived certainty of gold.

The problem heading into this week, though, was too many people were excited about gold. Too many people rushed into the metal in late July and early August, when gold traded above $2,000 per ounce – there was too much excitement.

And, those “weak holders” needed to be shaken out of their positions before a new rally could get started.

This week’s decline in the price of gold probably did the trick.

Take a look at this chart of gold, including two momentum-based indicators – the short-term relative strength index (RSI), and the commodity channel index (CCI)…

The vertical blue lines on the chart indicate the times in the past year when the two technical momentum indicators reached “extremely oversold” levels.

The previous two times occurred within a few days of gold making an important intermediate-term bottom. The price of gold rallied 15% in four months following this condition last November. Then, it rallied 33% in the five months following the March bottom.

This week’s decline has created the same sort of conditions that led to those rallies.

We may not have seen the absolute bottom for gold during this decline phase, but based on the oversold conditions on this chart, it looks to me like we’re close enough to the bottom to start buying gold.

I expect the price to be much higher in the months ahead.

Best regards and good trading,

Jeff Clark

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Reader Mailbag

In today’s mailbag, Alliance member Elwood shares how Jeff’s analysis has impacted him…

Reading chart interpretations is all very new to me. No doubt Jeff Clark understands market movements and the level of emotional stability underlying them. I started my studies by reading many interpretations of the market by many different people.

But I now listen mostly to the thoughts of Mr. Clark.

– Elwood

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].

In Case You Missed It…

WARNING: New Rule to Impact 1,200 Banks in America

Please take one minute to review this URGENT letter from the Office of the Comptroller of the Currency (OCC).

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Please click here right now and see how this could impact you.

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