Gold’s Next Move

July 18, 2010 Market Updates, Predictions No Comments

The summer doldrums are officially here! Gold has come off its $1,260 high and is slogging around in the vicinity of $1,200 per ounce. The question now is what is gold’s next move? It appears that this trading range will hold, at least temporarily, and until we have a change in direction, the bull market in gold is still on. Look for this to change in August and at the very latest in early September.

Short term, the upside may be limited, but long term, the bull is still intact. July has been a struggle for gold, but that is quite normal if you follow the “sell in May and go away” theory. This market is very volatile and I would not sell in “May and go away” for any reason. I did, however take profits on all of my positions that were up 20% or more. Core positions have been held and added to with the profits from the sales.

It is pretty evident that as gold backs off, the miners are being sold by large institutions. Technical triggers keep getting pulled and that has added to gold’s woes. All is not glum however, because there is strong buying every time gold breaks $1,200. Make no mistake about it, physical purchases of bullion and coins will lead the next move up in gold and silver.

The action in gold futures and ETFs since the end of June tells a tale of large institutional buyers that are booking their profits. Not a bad idea at all. Sometimes we can learn a lot from watching what the “big dogs” are doing.

From a high of 1,320 tons in mid June, gold ETF holdings dropped 4.4 metric tons. that Because the selling has slowed and not accelerated we are seeing that people want to hold gold for the long term and that this decline is solely due to a bout of profit taking.

Technically Speaking!

It is looking like we are beginning to see the foundation of a classic bear market flag as gold has had problems trying to recross the $1225-30 area. If this is truly what happens, we could see a correction in the price of gold from between 15% to 30%. A 15% correction from the high of $1,266 would mean a decline to $1,075. That is as far as I expect it to go, but that is not written in stone. If gold does go below $1,100, we will have to recalibrate our strategy at that time.

This is normally a rough period for gold, but by mid August that should all be behind us. From mid August thorough the end of the year, gold should rise and I predict we will see $1,350 by the end of the year.

I took profits as I should have, but I must admit that I bought back in a little too early. That is my major weakness. I tend to jump back in before the next leg down in the correction, probably because I am fear full of missing a jump up in price! I am working on that and you should too. If you separate your core positions from your speculative positions, it is easier to do. Never the less, the bottom line is that you can never call the bottom, or the top of the move, but it is sweeter the closer that you get.

Buy these dips, because in a year you will be looking back at these prices and saying ”what a bargain” they were. All we need to change the game is a geopolitical event, or a chart signal to be hit and the price of gold will spike, leaving you shaking your head if you are not in.

The question now is what is gold’s next move? It appears that this trading range will hold, at least temporarily and I am looking for a dramatic move up for gold after we get midway through August.

Stay the course, because the profits are going to be mind boggling during the next twelve months.

Till next time, good luck and good trading!