This Week In Gold: Should Investors Hold Off On Buying?

gold and commodities, gold prices
Written by Mike Hammer

 

As we discussed on Wednesday, GLD’s critical resistance level is 120. As long as GLD remains below 120, it’s better for medium- to long-term investors to hold off on any massive gold buys. And sure enough, on Wednesday GLD hit a high of 120.02 before retreating Thursday.

 

fidelity chart,

Per “best trading practices” we’ll forego discussing the why’s and get right to the “what can we do to make money from this.” Your friendly Gold Enthusiast sometimes slips into the abyss of why’s and who’s, but let’s face it, that doesn’t put any money in your pocket. GLD 120 is important right now because that’s where big mistakes can be made. If you quickly buy when GLD hits 120.00, pronounced “one twenty point zero zero” for effect, you’d be in a losing trade right now. You need some assurance that GLD will keep rising.

That’s what other indicators are for. If you’ve explored any charting tools you’ve doubtless seen the almost endless lists of indicators people have put together to try to tell if a move will keep going. Here are two pieces of free advice – well, three as it turns out…

One: RSI is a pretty good thing to watch. RSI tries to show the balance of orders executing at the bid vs orders executing at the ask. In essence, what’s the balance between people buying and people selling? When there’s more folks interested in buying, that means demand is strong, and price should rise. ECON 101, remember?

Two: Many indicators are based on the same things, so they’ll agree a lot of the time. You need to find indicators that show different underlying factors to get a better picture. For example, the Ultimate Oscillator is a refinement of traditional RSI, and the two vary only slightly. So you might choose to use the Ultimate Oscillator instead of RSI – but then you still need another indicator.

Trying to use too many indicators leads to confusion. Like too many voices in a room, if you have 5 indicators and 3 say one thing and 2 say the other, what do you do?

Truth is it takes time to sort out which indicators are useful paired with what others, and in what situations. Sorry, that’s just how it is. If it was easy everyone would do it, they’d soon cease saying anything useful, and they wouldn’t be useful anymore!

We’ll end that little lesson there. For now the best advice is to watch the 120 level above. And, judging by recent action, if GLD dips below 118 then rises back up, that could be a good time to make a short-term trade entry (looking to GLD 120 on the upside). Or, if GLD drops below 118 then rises back up, it might be a great time to buy starter positions of your favorite individual gold stocks.

As point number Three for those who read this far: As usual, your friendly Gold Enthusiast is keeping an eye on things, and will surely alert you when “something big” happens. Especially if the big thing seems like it could put some money in our pockets!

Happy weekend,

The Gold Enthusiast

DISCLAIMER: As of the time of writing, the author held no positions in any mentioned security (GLD), with no plans to trade GLD in the next 48 hours. The author is long NUGT and JNUG and may trade those at any time.

 

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals.

Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach.

Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

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