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November 3, 2012

Current Call Redux: Buy Gold Again

I'm beginning to believe my new Current Call series is going to prove to be a jinx on my trading. Like the oil trade, gold quickly flopped after the issuance of a buy signal. This gold trade was particularly pernicious because of the nature of the head fake delivered by our trend line break. As described in last week's Green Line or Panic post, most intermediate gold declines end with at least one day of panic selling. Furthermore, the nice, round number of $1700 seem like too easy a point to halt a decline. The big boys will always try to run stops before taking price higher.

Nevertheless, a trend line break is one of the tools I have used to judge when a decline has finished, and considering how unusually mild the drop in mining shares has been, one could easily be swayed to believe the whole sector might escape a final drubbing. We got that trend line break on Wednesday. And then Friday arrived.

Daily gold cycle chart

So I must post a record of 0-2 for the Current Call series. However, I am not out of this trade. In fact, I was adding positions into the panic. For reasons I will detail in tomorrow's weekend Member Letter, this panic, within the context of cycle analysis, should bring gold into its weekly low. So I am renewing the call to buy gold, and apart from a potential test of the 150DMA down at $1650, we should see much higher prices over the next couple of months. Just to be fair, though, I will not consider this renewed call to buy gold a success unless price is above the original entry point at $1720 when the trade is closed. (Actually, I expect gold will test $1900 before the next weekly cycle decline).


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