Gold Bulls Watch Out

Gold has been on a tear since the middle of August. It is up about 10-11% since the of the run when it was at around $1600. Gold is an interesting asset class. While many view it as “money” because a lot are scared of all the $FED “printing” (QE3), I just see it as an precious metal that is not only valued as an investment vehicle but also an industrial metal. I don’t want to get to fundamental/philosophical here, so lets jump right to the charts and what Gold bulls need to watch out for.

The Chart

$GC_F weekly chart

After topping out during its parabolic run in the summer of 2011, Gold has been in a big volatile range. After it hit ~1900 (all time highs), Gold put in a mini double top. Failure to close and hold above 1900 brought selling. Gold sold all the way off to ~1550-1560 (which was previous resistance). After another year of trend-less trading,&  we’ve established two major levels. We have the 1550-1560 support area (which has held like a champ), and we have the ~1780 resistance area (which has also been a brick wall).

As you see, we are back at the 1780 resistance level. Despite the very dovish statements by Ben Bernanke and the $FED, gold has not been able to bust through this level post QE3 announcement. Some of it has to do with the major run it has had prior to getting here, which frankly, had almost entirely had to do with the Platinum strikes in South Africa. This put a bid in the metals, and that’s when this move started.

If you’re a gold bull, the action for the last two weeks is constructive (it has formed a bull flag on the weekly). However, the fact that Gold has not taken out this major level on the QE3 news, and that this has been major resistance in the past, If I was long Gold, I would be looking to hedge myself until the 1780 level was taken out. It’s a long way down if Gold fails here again. A small hedge here (either via options or through an ETF) shouldn’t hurt, especially if you think all-time highs is in store for gold this year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tags: $GC_F $GLD $FED $DZZ $DGP

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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