Gold Is Going Down

Get ready to buy gold. Just don’t do it yet.

The current setup in gold looks precarious. The shiny, yellow metal could easily lose $100 an ounce, or more, in the weeks ahead. And, when that happens, most folks are going to be too afraid to buy.

As the old Wall Street saying goes, “when it’s time to buy, you won’t want to do so.”

But, the longer-term picture for gold is bullish. So, if the metal falls in price in the short term, traders should be prepared to buy.

A Bearish Picture for Gold

Look at this chart of gold…

The price of gold peaked in mid-May near $2,440 per ounce. Since then, the chart shows a series of lower highs – which has created a “descending triangle” pattern with support near $2,300.

In addition, all of the various moving averages have shifted to a bearish configuration, with the 9-day EMA below the 20-day EMA, and the 20-day EMA below the 50-day MA.

This is a bearish, short-term setup. If gold loses the support at $2,300, then the pattern targets a move towards $2,170 or so – which lines up with the March highs.

Three weeks ago, we noted the bearish setup in the gold mining stocks. The bullish percent index for the gold sector (BPGDM) had generated a double-sell signal. Since then, the Gold Bugs Index (HUI) has lost 5%. And the decline looks poised to accelerate.

The action in gold stocks tends to lead the action in the price of the metal. So, with the bearish setup on the chart of gold, and with the poor action in the gold mining stocks, it looks to me like the price of gold is headed lower in the weeks ahead.

The long-term argument for owning gold is as strong as ever. Folks who are looking to buy the shiny, yellow metal should wait a few weeks. We’ll likely have a chance to do so at lower prices.

Best regards and good trading,

Jeff Clark
Editor, Market Minute