The action in gold yesterday was brutal. Take a look at this chart …
You can see that gold’s 2-day fall brought it close to Fibonacci support at 927. Gold is bouncing today, but it has to get above 959 to show real improvement.
So, the big risk is to the downside. If 927 fails, support at 924 comes into play. If that fails, we could see gold move quickly to test 900. Sure, support shows as 905, but why quibble?
The big driver for gold is the U.S. dollar. The good news (for gold bugs) is that the dollar was capped by its 20-day moving average yesterday. But it showed strong momentum, and we could see a further rally.
If I had to guess, I would say gold is going to 900 to shake out the weak hands. I’d look for that to be a base for the next big rally.
That probably isn’t what you want to hear, but I owe you the truth as I see it.
Now, does this have to happen? No! Gold could find a base right here (in fact, the Fibonacci numbers support this view). So, stay tuned. We’ll see how gold ends the week.
But what does this mean for gold mining stocks? Was the buy signal I got in gold miners recently a false signal? Well, we DO get false signals — as the saying goes, if this was easy, we’d all be billionaires.
You can see that the GDX is headed lower., but it hasn’t broken weekly support. The gap higher that I’ve indicated is strong support, so let’s basically draw the line at 36. If that fails, then the GDX could head back to test support at 30.80 or 29. Ouch!
So, if you’re long gold or gold mining stocks now, should you exit with a small loss or hold? That depends on your stomach for risk. The larger trend in gold is still intact, so I’m content to sit. If you prefer to exit, that’s fine, too. You’re in charge of your own investing destiny.
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- Update on Gold, Guns and Spam (03/07/09)
- Oil Update (09/10/08)
- Update on Mag Silver (02/24/09)
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In this type of situation I am prone to split the risk by selling 1/2 my shares. If my shares go down, I buy them back cheaper and average a net lower cosst/share. If the price goes higher, I buy back in ASAP and net a somewhat higher cost/share. The fact remains that the possibility of downside risk is halved and that allows for a sound night’s sleep.
Bert