Gold: Time To Buy?

“It’s the end of fiat currency!”, “Inflation is going to kill us all”, and my personal favorite “You are forecasting a depression much worse than 1930, my friend”.

Internet message boards are filled with this kind of banter from the precious metal bulls. For whatever the reason, gold brings out deep seated emotions in people, either they love it or hate it.

Emotions are not a good compass to use while placing long term, or any trade for that matter. It is crucial that one stays detached, logical, and practical while making decisions in the market.

“How do you expect me to stay detached when I am making future projections about MY money?”

The first step is to only speculate with money you can afford to lose, but this is not what this piece is about. One logical way traders decide what direction to take in a trade, or even to place one at all, is to look at the past to find comparisons/contrasts to what is happening now.

Let’s take a close look at gold by comparing it to the past to get a long term perspective on what’s happening now:

Gold began a short crushing uptrend around early 1976, it spiked to a high of approximately 750, then dropped back to about 550, rose again a little short of the high, (forming a double top) then collapsed by more than 50% by the early 1980’s.

It languished at these levels until 2003 when the present gold explosion began.

Right now, the charts look uncannily similar between now and the end of the famous late 1970’s gold bull. It looks to me that we may be in the start of the first small retracement up, prior to the smack down to 40-50% retracement off the highs.

Our software is indicating support at 856.06, and a retracement back to the mid-900’s is indeed possible in the short term. Day and swing traders can certainly try to catch this potential bounce that has appeared to have just begun.

Below is a 15 minute chart- you can see the steady uptrend off the lows on the short term. I believe that there is money to be made right now on the long side in the short term, just stay very nimble and alert. No one can know just how high this retrace will go prior to the projected smack down. It could go for weeks or end today.

My opinion is that gold is a short term buy, but remains a long term sell as price retracement has just begun.

Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.