A Horrible Week

by JDH on April 20, 2013

I have nothing good to say about this past week.

I have detailed thoughts on the Boston Marathon bombings, but since you are here to read about investing and the markets, I have posted my thoughts elsewhere.  Feel free to read them as you see fit.

The tragedy in Boston, and in Texas, was horrific, so it almost seems silly to waste time discussing the events in the gold market, but let’s review the disaster there as well.  A chart of the last few months paints the awful picture:


Not pretty.

A longer term view shows that the long term uptrend remains in place:


You can click to enlarge the chart, but as you can see from the blue uptrend line, if we draw the line starting at the start of the bull market in 2001, the bull market is still a bull market even if gold drops to the $1,000 level.  I’m guessing there will be a number of un-happy people if gold drops to $1,000.  Of more interest to me is the drop down to the red secondary uptrend line.  Let’s zoom in for a closer look:


Again, you can click to enlarge the chart, but as you can see from my hand-drawn-and-therefore-imperfect lines, the $1,320 level we touched at the bottom on Tuesday is within “spitting distance” of the long term uptrend line, created by joining the lows of 2005 and late 2008.

The RSI, and the MACD (see previous chart) are at their lowest levels since this bull market began.  We are at the uptrend line.  That leads to one inescapable conclusion:

Either the line holds, or we are headed much lower.

This is exactly the point that onlooker made on the Buy High Sell Higher Forum, quoting Trader Dan, who also identifies the $1,300 level as critical.  He uses Fibonacci retracement levels to arrive at the same conclusion I reached: we are at a pivot point.

So, how do you play it?

Why are you asking me?  I’ve been long for the entire $500 drop?  What do I know?

However, since you are here, my strategy is:

First, hold.  If we are near a bottom, now is not the time to sell.  If we are going lower, we will eventually hit bottom, and six months, or a year, or two from now gold will be substantially higher.  If you are a long term investor, hold.  If you are a day trader, you blew it.  You should have sold a long time ago.

Second, line up your cash.  A drop to the the 2008 low of $700 is theoretically possible.  That would probably be the greatest buying opportunity of a generation.  $1,300 may be the low, also representing a great buying opportunity.  You can only buy if you have cash, so start accumulating cash.

Third, watch for a retest of the lows.  Once gold stops falling, it will probably go up, and then go back down to test the $1,300 level.  If that test holds, significant buying may be in order.

Ultimately we all know that the government is printing money like crazy, so inflation is inevitable, and as currencies collapse, gold will increase.  (Even with the drop in gold, would you rather have investments in Cyprus, or gold?).

It ain’t pretty, or fun, so keep your seat belts fastened.

Thanks for reading.  Let’s hope I have something more positive to share with you next week.