I have seen countless posts on why gold is going sub 1000, when I start to see the majority of traders on the same side of the boat its time for me to take a step back and see if there are good reasons for them to be wrong. Since the market is designed to make the majority of people wrong the majority of the time, anytime I can take a contrarian position with good technical reasons I am all over it. So lets dive into gold and the miners.
I wanted to start with some info from Sentiment Trader this is from yesterdays write up. As you can see there are a few good reasons to see a medium turn rally. Money managers are net short to an extreme while smart money is long gold at the highest level in 10 years, this has the setup for an explosive move and forced short covering if gold starts to head higher….
Another interesting setup in the space is the amount of paper gold vs physical available. there is now 294 oz paper to every oz of real gold. This so far hasn’t matter as the gap has continued to widen over the past few years, it won’t matter until it does and then it will matter in a big way. I wouldn’t put to much weight in this for making a decision in the short term but its worth noting for sure.
OK Lets dive into a few charts. The first place I wanted to start was the CRB index this is a quarterly chart going back to 1960 for some key historical perspective. The chart should speak for itself we are sitting on 30 year support with a potential RSI coil taking place. If this level can hold we could see a large potential bounce over the next few quarters across the entire commodity space…
Next lets look at the gold bug index HUI on a monthly time frame another chart that speaks for itself. We have a nice RSI coil/ basing action, MACD is positive and we are sitting on 13 year support area with 4 tight monthly closes, its setup for an explosive move in the next few months.
GDX on a monthly basis looks very similar the price is currently basing just below the 2008 lows however its setup in a 4 tight monthly closes with a nice RSI wedge and once again positive MACD and also is set up for an explosive move in the next few months.
Lastly lets look at Gold on a monthly basis. Instead of seeing a move sub 1000, I see a bullish falling wedge sitting right above the 1040 previous resistance area which should now act as support, it also has a nice RSI coil and looks primed to make a big move in the next few months.
Keep in mind that the charts above were monthly or quarterly charts this is not going to play out overnight and we still could be a month or two away from a big move to the upside. However the setups are there and everyone calling for easy move south of 1000 an oz should take a few minutes and really think about whats more likely, 30 year supports breaking from tight boring monthly closes, or a bounce off key support areas and moves out of the RSI coils. If you like this type of analysis please check out the join section of the site JOIN . I provide in depth looks across all markets at key junctures. Members get access to video overviews as well as all the trades I take with stops targets and asset allocation size. You also get access to the day trading chat room I would love to see you inside. Have a great day.