Matt Insley

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 

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

  • Petros Telos

    You’ll be a buyer at $1575. Good luck finding any in local coin and bullion store. Our local store is out of 1 oz. gold and silver. They say that they will have delivery on 15 January. The market price is too low. Otherwise, they’d have no trouble with the providing the product. But none of the local holders of gold and silver coins and bars are bringing in their product at this price. And why should they?

  • Michael Parish

    Gold has failed every rally attempt since its high in 2011. Why would anyone think it’s a bargain at a point it has already attempted to rally from three times and failed? Gold has attempted to break above 1750 those same three times and failed. Gold might, and I say might be a bargain at 1300.00. When you consider all the positive news for gold, from Germany repatriating its gold, and Western countries continuing to print paper and the stories of China, India and other countries buying massive amounts of gold the price should be through the roof, but it’s not. Time to rethink just how good physical gold is as an investment. I would also suggest you try selling an ounce of gold and see how much you can get for it. I’m not speaking of coins, but rather gold mini ingots or other forms. Coins have their own value unlike lump gold. What you’ll discover is that the spread between the quoted price of what you pay for gold is considerably less than you can sell it for as I painfully found out. If you want to invest in something that you can exchange try guns and popular ammo.

  • ewalker

    I think a lot of people have been disappointed with the gold and silver trade recently due to the fact that a lot of these guys who buy in do so because some “guru” talks up the metals with one outrageous forecast after another. Many gold-bulls don’t take into account rational factors that can play into downside movements for bullion, such as profit-taking, tax incentives, etc.

  • g lammert

    Of all of the 1 quadrillion dollar equivalent Asset-Debt Macroeconomic System’s assets’ valuations, gold’s quantitative fractal evolution denominated in dollars is the System’s most elegant. The evolution from Feb-March 2001 is 27/67/50 months ::x/2.5x/nearly 2x with the third 50 month fractal composed of 10/24/18 months with a peak at 16 months.

    The last 18 month fractal is composed of 14/34/33 week fractal with the third fractal peak at 28 weeks.

    A historically great Asset-Debt (bad debt) Macroeconomic system crash is at hand which has everything to do with the System’s natural timing of synchronous bad debt liquidation/default and is true true and unrelated to the US congressionally contrived fiscal cliff.

    Gold’s valuation denominated in dollars will do (nonlinearly) badly during bad debt liquidation, which currently represents assets supporting gold valuation.

    The hegemonic US dollar and US sovereign debt Future’s are the Asset Debt system’s countervailing growth asset. US debt can and will be repaid.

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