Don’t Buy More Gold Yet: Here’s why

Gold has bounced off of support represented this time around by the 50 day moving average and it now approaching the prior highs. Actually today, it’s pulling back a bit as the US dollar strengthens slightly. The chart below shows you where to pull the trigger on your next buy:

Gold ETF GLD Market Timing Chart

Here is the key to the chart:

Green line: Breakout point.

Red line: First support represented by the gap that occurred there (space between the 12-27-2010 and the 12-28-2010 prices).

Blue lines: Lower support levels that could be reached in a more substantial pullback.

White line: Up trend line of support.

If we do NOT break up and out over the green line of resistance, the gold market will pull back to any one of the support levels shown in the chart. The gap would be the first target, followed by the RED line, the WHITE up trend line, and then the two blue (OK aqua!) lines. There are other support levels of course below these, but this gives you some of the possible targets for the next pullback should we see it.

CONCLUSION: For now, BUY the next close over the green line which is at 139.54. You can buy the IAU instead if you like as it has lower carrying costs. The only limitation is liquidity and the absence of many options choices although that should change going forward. My choice is to use a tight stop (see my website “Buyers Checklist” page for an explanation of stops) on all new purchases, and I do not believe in trading your long term position as it would be like trading out of all your US dollars. You could do that, but most investors would not. Also, gold acts as a hedge against fiat currency issues as I’ve discussed before.

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Standard Disclaimer: Remember, it’s your money and your decision as to how to invest it.

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One Response to Don’t Buy More Gold Yet: Here’s why

  1. SunAndStorm says:

    Gold did indeed pull back today over $40. The metals are under fire. Silver closed below $30/oz which was a previous milestone. GLD closed on support. If it breaks here, it will bring GLD down to one of the lower support levels noted on the chart above.

    Have a great day,

    David

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