Practical Investment Commentary - No Hype

Two weeks ago a wrote Gold: A Deeper Dive, where I made the point that gold is still in a long term bull market, but the near term future is more uncertain.

Price action over the last six months illustrates that point.

Gold spent a few months building a base in the $1,300 range, then shot up to $1,550, before setting what may be a new base in the $1,450 range.  ($1,445 is a more precise number).  That’s the approximate midpoint between the 50 and 200 day moving averages, and it’s the approximate midpoint between the uptrend started in May and the downtrend started in September.

The pennant formation can’t go on forever, so gold will have to resolve to either the upside or the downside.

(How’s that for insightful analysis.  Hey, you get what you pay for).

Which way will it go?

The Relative Strength Index is at 48, and turning upward, so that is traditionally a good buy point.

Historically, gold stocks tend to be flat in December (rising about as often as the fall), but over the last few decades the first quarter is the best performing quarter for gold, so purchases on weakness in December may be rewarded with higher prices in the new year.

Last year gold finished the year around $1,274, and then bounced to $1,350 by mid-February, a 6% pop, before retreating back to $1,270 in May.

NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, an ETF that holds gold mining shares, and uses leverage to attempt to get 3 times the move in the underlying stocks (both up and down, so it’s a risky play), had similar price action, only more pronounced.

NUGT ended 2018 around $16, and bounced to $24 in February, a 50% gain, before giving it all back, and more, to around $14 by May.

From there NUGT jumped to $45 by the start of September, a nice triple, before giving half of it back, to where we are today.

So what does that all mean?

Buy NUGT at $25 in December, and sell it at $40 in February, I assume.

Nice work if you can get it.

I’ll keep watching.  More next week.