Mom called me on Monday to ask if I thought she should buy gold stocks yet.

Longtime readers will recall I talked mom out of buying gold stocks back in July. Mom’s friends were buying the gold stocks. They were excited about the fortunes they were going to make. And, mom wanted in on the action.

I talked her out of it partly because the gold sector had already rallied nearly 40% in just two months. Commercial Traders (aka the smart money) were building a large short position in gold futures. And, the Mother Indicator – my proprietary technical tool that suggests doing the exact opposite of whatever my mother wants to do with her money – was flashing a sell signal for the gold sector.

On Monday, the VanEck Vectors Gold Miners ETF (GDX) was trading for just about the same price it was at back in July.

“Gold stocks haven’t fallen like you thought they would,” Mom said. “Besides, even your own people think gold is ready to move higher.”

Mom was referring, of course, to the mutinous essay my friend and managing editor Mike Merson published last Saturday.

“That’s what makes a market, Mom.” I said, “People have different opinions. There are lots of folks who disagree with me. But, I still think gold and gold stocks are headed lower first before they head higher again.”

“So, how will I know when it’s time to buy?” she asked.

“You’ll know it’s time to buy,” I replied, “when it’s the last thing you’ll want to do.”

Gold and gold stocks are down sharply since Monday – especially after yesterday’s brutal decline. And, it looks like there’s still a bit more downside ahead.

Here’s an updated look at the chart of GDX I showed you a few weeks ago.

GDX closed yesterday right on the support line that has stopped every decline over the past two months. The problem, though, is the more a support line is tested, the weaker it becomes. It’s like jumping up and down on a frozen lake. Eventually, the ice breaks.

If support breaks on GDX, then the next downside target is at about $25 per share. I suspect there’s a pretty good chance GDX will get to that level in the days ahead.

Notice how all the various moving averages (the squiggly lines on the chart) are in a bearish configuration – with the 9-day EMA trending below the 20-day EMA, and the 20-day EMA trending below the 50-day MA. This sort of setup usually leads to lower prices.

So, it’s still too early to buy gold stocks here. But keep an eye on this chart, and remember what I told my mom…

“You’ll know it’s time to buy when it’s the last thing you’ll want to do.”

Best regards and good trading,

Jeff Clark

Reader Mailbag

Will you be buying gold if it breaks to the downside? Are you looking to buy for the long haul, or a quick trade?

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