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Is Gold Blowing another Kiss of Death?

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July 29, 2013
Chad Karnes, Chief Market Strategist

Gold has rallied for three weeks now.  Is the decline over?

If you ask the gold bugs they certainly would say so, but of course they are biased and have been trying to pick the precious metals bottom since 2011.  Some of these supposed “experts” have been wrong for over two years now and are sitting on some very large paper losses.  For more on these experts’ picks gone horribly wrong see another recent article of ours entitled, “Ignore Gold Experts”. 

We prefer a more balanced and unbiased approach to our investing.

A Look into Gold’s Recent Past

In the ETF Technical Forecast published 5/12 on ETFguide.com I pointed out the “kiss of death” that gold had just completed.  The chart below was provided to our subscribers along with the following alert:

“Gold’s relief rally has stalled as expected at the previous support turned resistance (shown in green).  The expectation is for it and silver to eventually make new lows as the recent rally has all the hallmarks of just a gap filling relief one.  The gap created at 1470 has now been filled.”

 

The kiss of death held, new lows were made, and we helped subscribers ride the precious metals (NSEARCA:IAU) down over 15% capturing astronomical returns through our recommendation of put options on the miners (NYSEARCA:GDX) and silver (NYSEARCA:SLV) as well as buying inverse levered ETFs such as the Direxion Daily Gold Miners Bear 3x (NYSEARCA:DUST).  Our multiple gold and silver trades resulted in gains from 29% to 525%.

Unfortunately for gold bulls, a similar “kiss of death” may again be occurring in gold prices.

But, fortunately for those of us who are unbiased, it may be offering a high probability trading opportunity.

Another Gap Fill?

The chart below provided to subscribers on 7/24 shows a similar setup to the last dead cat bounce in early May.  After a fast and furious selloff then, gold and silver meandered their way back up to a price level where sellers were waiting to exit positions.  That previous level as shown on both charts in green was $1470 on gold and $144 on GLD. 

Once those price levels were reached, another sharp and fast decline occurred in late June setting up another large open gap in price as shown by the shaded area in the below chart.

Notice the similarities between the two shaded areas?  Each decline sported an open gap and each eventual relief rally took price back to the beginning of that gap, where resistance resided.

 

This week, GLD (NYSEARCA:GLD) and Gold prices have meandered back up to that key resistance level of $130 (GLD) and $1350 (Gold) as shown by the black arrow. 

Why is the $130 level now so important? 

Because it is where the previous declines in April and May found support and is a level where buyers would finally start to breakeven again, more likely to cut their losses and get out while the getting is good.  Everyone who bought gold and silver in April and May are now losing money and are likely looking to get out of the trade. 

This price level presents that opportunity for a smaller loss. 

There are also many trapped traders in the blue shaded area that have finally gotten a chance to buy and/or sell and is the reason gaps eventually attract prices.  Open buy and sell orders still linger in those areas and are often eventually filled.  Now that they are filled, the market can move in its more natural direction, which at this point is down. 

Now What?

Letting price be your guide on gold (NYSEARCA:NUGT) and silver (NYSEARCA:DSLV) is extremely important here as the metals show us if they have enough support to overcome resistance levels that previously rejected price. 

As of this week the gold gap has now been filled (we are following a somewhat similar gap in silver (NYSEARCA:AGQ) as well).  It is now very important for gold to rally beyond $1450 ($130 GLD). 

If it can, the recipe will be in place for a shift in the short term trend back to up, and it may offer a tradable long.  With sentiment starting to reach such bearish extremes, there also would likely be room for price to continue to run as shorts cover and buyers enter. 

However, if prices are rejected here, just as they were with the previous “kiss of death” in early May, we should expect another new low in prices.      

The ETF Profit Strategy Newsletter and Technical Forecast focus on actionable and high probability profit opportunities on all the major asset classes.  In the latest Technical Forecast we have identified high probability trade opportunities that will profit whether the metals can overcome resistance or if they decide to blow us another kiss of death. 

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CommentsAdd Comment

Cahya said on October 01, 2013
  invest n trade are different.invest means u buy n hold. hpoing for a better return than alternative like depositing money in bank. for this i think studies have shown human do no much better than monkeys at random.trade means u buy or sell to make. its not as easy as buy low, sell high. generally, returns and losses are potentially much higher than investing. however the key question is consistency. please do not be misled by claims or stories of big time traders or fund managers and believe all is well. there are many who have failed miserably.in watever one choses, its most important to understand one's objectives and directions.
 
 
Igor said on September 30, 2013
  We are getting neaerr to a remuneration model that is fair and that is based on work and quality of advice and NOT product pushing which doesn't add value and which puts the consumers' interest in the back seat.I am very encouraged by Lorna Tan"s article in the invest section of Sunday Times today in which she examines the various models that are already in use.She also examines who are the REAL advisers and what is the right qualification. I am impressed by Provident Advisory which is the fee only financial advisory firm.I hope MAS will adopt this model and force all insurance companies to adopt this model based on salary without the commission. Unfortunately, this will result in many insurance agents having to be 'reitred' for reasons of qualification in financial planning and financial skills and unsuitability.These 'retired' agents should look to other industries where unethical selling or mis-selling or incompetent selling will not have much impact or cause much financial devastation if the whole process is not conducted 'properly'.They should be able to apply their super duper selling skills successfully in these industries of their choice, especially those who are life time mdrt qualifiers..If these agents want to stay they have to comply with FAA practice and be qualified at the tertiary level of CFP or equivalent.It is unlikely that you can advise properly without this qualifications unless you have been pracitising properly all this time.There are the veteran practitioners and not the super duper salesmen and women.Let's be real. Who will consult and pay fee to a 'doctor' not only just graduated but has only nursing certificates?I won't consult a so called financial consultant who has only certificates in entry level CMFAS 5&9. It is like consulting a plumber on personal financial matters, right? Worse, if you are unlucky you may be pushed a product that steals from you for life without addressing your needs..Well, I hope MAS is seriously looking into it as it sounded to the industry a few times and NOT just paying lip service and give false hope.Meantime we can wait with bated breath.
 
 
BakerGirl said on July 29, 2013
  Uh, oh...hedge funds are increasing their bullish bets on gold!
http://www.bloomberg.com/news/2013-07-28/hedge-funds-raise-gold-bets-as-goldman-sees-decline-commodities.html
 
 
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