Gold, and a Toppy Market

by JDH on October 7, 2017

Before we get to gold, how about that DOW?

From 13,000 five years ago to 22,730 today, that’s more than a double.  With the Feds printing money like crazy, the correct answer over the last five years was buy, and keep buying.  The double bottom in the summer of 2015 and early 2016 was a great opportunity.  Even the last two times the RSI was in nosebleed territory didn’t lead to much: two or three months of consolidation, and then back to record highs.  If past history is any indication, it will be the same, again.  A pause between now and Christmas, and then more new highs.  Crazy.

Gold

Now to gold.

I said last week that we were entering the golden week, where a Chinese holiday marks the beginning of an upturn for gold.  Was it a golden week?

Not really.

Gold ended the week lower than it started, and early Friday was down $20 from where it started, so it looked like the rout was on.

But then a big bounce happened, and in a few hours gold bounced from $1,262.80 to over $1,276.

What does this mean?

You’re asking me?  I just read stuff on the internet, about the golden week.  I don’t really know.

But if you want a theory, here’s one:

If you draw Fibonacci retracement levels from the bottom on July 10 to the peak in September, the 61.8% retracement level was $1,263.57.  Of course I’m doing a really quick chart, and I’m not actually doing any math to verify to the penny these numbers, but given that this set-up started on July 10, a drop to within 77 cents of this level is mildly interesting.

From here, the set up is easy.  If the low on $1,262.80 on Friday was indeed the low (and it may be, because it didn’t go lower than the lows in mid-August), then gold should make it’s way back above $1,300 in short order.

Of course I don’t actually buy gold, I buy NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS.  Here are my recent purchases:

  • Sept 21 $32.94
  • Sept 26 $33.70
  • Sept 26 $33.34
  • Sept 27 $32.15

My average cost is now $33.79, so with a closing price of $34.28 I am sitting on a small profit.

What’s my sell point?

One third of my holdings at each of $40, $42 and $44.  That’s the plan, although that is always subject to change.

My guess is that since North Korea has been quiet for two weeks, it’s time for them to launch another missile, which should pop the price of gold, which should give me my exit point.

Stay tuned and watch the action.

For now, enjoy the long weekend, and don’t worry about all the “noise”.