We’ve written ad nauseam about the bearish case for gold.
The 30-year commodity cycle has peaked…
Fed printing isn’t causing inflation…
Investors are looking for income, not metals…
All the while, I’ve told you to sell into rallies. And today’s a perfect time to do that.
Here’s a chart of gold futures, showing a classic example of how significant market levels – support and resistance levels – tend to work.
The saying goes, “Support, once broken, becomes resistance.” And often, these levels tend to appear at round numbers.
Since April, $1,350 has been the make-it-or-break-it level for gold. This is the price at which gold initially found support after dropping $200 per ounce in two days!
After a brief rally – a mere dead cat bounce to $1,450 – gold rolled back over and retested the $1,350 support level, which held as prices dawdled sideways for about a month.
Then, on June 20, gold fell through $1,350 like a rock down a well. By June 28, gold futures were trading under $1,200 per ounce – the downside target I established for gold when it first fell under $1,550.
Now, after drifting higher through July, gold futures are trading back up to this all-important $1,350 level. While $1,350 acted as support before, it’s likely to act as resistance now. That makes it a great time to get short gold.
With current prices around $1,320, place a stop-loss order $40 higher, at $1,360. This “hides” the stop above the $1,350 resistance level.
If gold breaks through $1,350 to the upside, quickly ditch this short position and wait for another tactical entry opportunity.
As far as profit potential goes, gold should easily fall back down to re-test $1,200. That puts $120 of profit potential under the current price, or three-times the amount we’re risking… a la, a reward-to-risk ratio of 3-to-1.
Of course, we see gold dropping much further than $1,200. So take this guidance one of two ways… it can be a quick, short-term trade or a great place to get short for the long haul.
Either way, gold remains a seller’s market. Buyers beware!