This Gold Strategy Is About To Payoff...

Gold dropped $30 yesterday, $60 in the past three days, $110 in the past month, and $130 in the past three months…

Before you ask “Hey! What the heck is happening!?”

Let’s take a step back and take a look at the big picture…

It seems like just last week we were discussing the future direction for gold.

Wait a second. It WAS last week when we were discussing the future direction to gold! Luckily with that “best time to buy gold” discussion in our back pocket we can frame this week’s downward pressure on gold.

If you recall, last week we discussed two scenarios where gold would be a solid buy. First was on the upside: if gold broke above $1,745. With the price of the metal falling precipitously below $1,650 we’re much further away from that upside price target.

In the past few days, however, we began approaching our downside “bargain price” target. Take a look at the tail end of the chart below:

“Our other buy price could be on the downside” I wrote to you last week. Here’s what we discussed:

“If gold breaks from its recent consolidation to the downside we could see a quick $100 shaved off the price per ounce. If you’re a long-term buyer of gold, don’t even pay attention to this trading fluctuation. But, if you’re looking to buy some bullion, this is your opportunity.”

“Looking at the chart we could see a solid opportunity around $1,575. This price target takes in to account gold’s past consolidation point. With strong support at $1,550 I’d be a buyer at slightly above that, at $1,575.”

“After a quick stint at lower prices gold’s fundamentals could kick in, just like we saw in 2008. Over the past 5-years that was the best buying point for gold. It also led to a 150% gain, just in the price of bullion.”

Frankly, it’s nice to see gold respect its technical chart pattern. If you remember when gold shot up to $1,900 in 2011 – it was clear that the metal had gotten ahead of itself.

What happened back then? The price for gold quickly corrected below $1,600. It made buyers at $1,900 quite upset, too. That’s like taking a $300 hit on every American Eagle coin you bought!

It’s an explainable trading phenomenon…

The one phrase that always sticks in my head from visits to the Chicago commodity pits, is the saying “gaps get filled.” It’s something every trader knows well.

We’re talking about price gaps. The price of gold can “gap” higher or “gap” lower (a lot of time this happens in day trade, but the same thing can be said for big weekly moves.)

Whether the price shoots up or down with too much gusto — too much gap — “the gap gets filled.” That is, if the price of gold gaps from $1,600 all the way to $1,900, without gaining support along the way, prices will drop until support forms. That’s what happened in 2011.

Today the same technical forces that controlled the price of gold back then are solidly in control today, too. Indeed, since 2011, gold has followed its technical trend to a tee.

That’s why the two price points we listed last week are important. Both points are determined by gold’s technical support and resistance.

Getting back to this week’s drop in prices, don’t get all worked up. The long-term trend for gold is higher. The medium-term trend for gold is also higher. That’s why buying at a technically-sound price point is our best advantage to playing this market.

Better still, light holiday trade could make these moves easier to take advantage of. Looking over the past five years, December trading – including the holiday week – has hosted some substantial price moves.

With this week’s pullback in mind, I’d be a gold buyer at $1,575. Don’t shut your computer down for 2012 yet, my friend. Instead, keep an eye on these lower ranges and if we see prices dip into bargain territory pick up some bullion.

Keep your boots muddy and enjoy your holiday.

Matt Insley

Original article posted on Daily Resource Hunter