Is It Too Late to Invest in Gold?

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August 9, 2019 11:11am NYSE:GLD

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From Mike Hammer: I’m not exaggerating to say today’s article begs to be written.  And if I don’t write it, I’ll have to reply to a TON more emails…


The #1 question your friendly Gold Enthusiast is getting this week is: Is it too late to buy gold?

With the big pop on Wednesday, a lot of people are wondering if there are still reasonable entry points for a gold trade.  As always we can “start with the chart”:

gold resistance zone chart

(credit Fidelity.com)

This is the 1-month chart for GLD, our US market gold trading proxy.  For convenience, we’ve drawing in the current horizontal level lines and indicated where range traders would look for short-term trading ranges.

What the chart shows is there were two distinct “bumps up”, both happening so fast that the traditional rules aren’t quite satisfied yet.  And that always leads to an extra degree of uncertainty.

The latest moves are lacking in the 3-day-rule area.  You see, horizontal trading levels in Western charts are set according to 3 very basic criteria:

1. Tops and bottoms in ranges
2. 3 periods’ worth of candles
3. OR cycle highs and lows

#2 is where the current chart loses out. Both the Monday-Tuesday and Wednesday-Thursday “new ranges” are only 2 days old.  And, the big gap between Tuesday and Wednesday means we can’t use them for the same range.

This gets us back to the original question – Is it too late to buy gold?  A trader would always restate this question as:

WHERE are my good entry points?

Fortunately, this chart does answer those questions.  The first rule of buying is: Only buy something when it’s rising.  (Otherwise it’s falling, and why would you pay more now than you can in a foreseeable later?  haha!)

So we want to look for places where “rising up through” would trigger a buy.  Those are easy to see once the level lines are drawn in, which we’ve done for you in this chart.

In rising order, the current chart levels for GLD are 137, 139, 141, and 142.45. Buy points would be when a day starts below a level line then rises up through a line during the trading day.  Stops would be placed below the buying level to protect against fallbacks.

Keep in mind that a rise above the current high on a chart is considered a breakout trade, as long as the total time is shown by the chart is “reasonably long”.  Since the high shown on this chart is also the 52-week high, the level at 141.45 certainly meets the criteria.

With GLD trading around 140 points per share and moving around 2 points per day (aka ATR), you don’t want to make your stops too tight.  In fact, you may want to trade a smaller share size than usual and set your stop below the next level down to make sure you don’t get “shaken out” by a small intraday move – while keeping your risk reasonable.

Your Gold Enthusiast is currently watching for trades with these parameters.

Signed,

The Gold Enthusiast

DISCLAIMER: No specific securities were mentioned in this article.  The author is long the gold sector via small positions in NUGT, JNUG, a few junior miners, and covered calls on part of the NUGT position. He may be making (still small, non-market moving!) trades over the next 72 hours based on the conditions discussed in the article.


The SPDR Gold Shares (GLD) was trading at $141.56 per share on Friday morning, down $0.17 (-0.12%). Year-to-date, GLD has gained 14.48%, versus a 9.60% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 33 ETFs in the Precious Metals ETFs category.


This article is brought to you courtesy of ETF Daily News.


About the Author: Mike Hammer

Mike HammerFor 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.


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