Do you own Gold? It’s time to take profits
Last week we wrote,
“Considering that gold is rallying in a final “wave 5†this week, a peak in gold
prices would coincide perfectly with the beginning of a “wave 3†rally in the US
dollar index.â€
Readers will recall that we gave two target
levels for the breakout in gold. The first was $480 and the second was for
$490-$500.
Spot gold reached our first target which was the
measured move of the base of the triangle from last year’s high at $457 to this
year’s low of $410. The measured move of $47 from the breakout level at $433
gives a target of $480.
Today’s bearish daily reversal off of a very
obvious target means that gold should now target the equally obvious support
level at $460 where traders who remain bullish should look to re-establish
longs.
However, we must note that breakout has followed
what appears to be a very clear “five wave†move. If so, then a deeper
retracement back to the apex of the triangle formation at $422 is expected.
So, traders have a very clear price target and
objective. One could sell spot gold today at $475 with risk above $480 or look
to buy at $457 with stops just below here.
We trade only the dollar, but look for clues in
both precious metals and the currency markets to confirm or deny our forecast in
the dollar index. Therefore, the fact that the dollar has held above the 38.2%
Fibonacci Fan line from the 2002 highs just as gold is completing a “wave 5â€
peak suggest to us that as we said last week, a “wave 3†rally in the US dollar
index is now expected.
Note that this relationship has a recent
historical example to follow. If you pull up a chart of gold’s triangle breakout
in August 2003, gold peaked at the exact measured target of $427 which was
followed by a pullback to the apex of the triangle around $360 (actual low was
only $373). This coincided with a strong rally in the US dollar in 2004 after
gold’s needed correction.
The setup is the same now. Gold looks to have
topped and should pull back to at least $460. This should coincide with a strong
rally in the US dollar as it now pays 3.75% interest, not 1.0%. If the dollar
breaks out, gold bugs should look to pick up the metal around $430.
Regards,
Jes Black
FX Money Trends
613 4th St Suite 505
Hoboken, NJ 07030
Tel: 646.229.5401
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.
Jes
Black’s opinions are often featured in the Wall Street Journal, Barrons,
Financial Times and Reuters. He has also written numerous strategy pieces
for Futures magazine and regularly attends industry conferences to speak
about the currency markets.