Gold was in the spotlight on Friday in a big way moving almost $39 to close at nearly $900.
I’m a big fan of gold for a number of reasons (fundamental, technical, historical) but I know from experience that gold trades much different from a momentum point of view. It tends to sell off once it goes outside it’s upper bollinger band as seen by the arrows below. Just when it looks like gold is going to bust out and move to blue skies it seems to run out of buyers and reverses.
As you can see GLD and many individual gold miners moved outside this indicator on Friday and I expect a small pullback before it begins a new wave up.
Judging by the negative divergence on the RSI you can also easily see that momentum is waning. As the stock has been making higher highs, the RSI has not been confirming the move. We could possibly move up to the 92 level before profit taking hits, but I just don’t see a good entry at this point if you’re not already invested in these stocks. It would be more prudent to wait for a slight low volume pullback before entering.
The only problem with this way of thinking is there could possibly be many with this outlook and that could actually propel gold to higher levels, but I’m willing to risk that because if it does move up even more, then that will confirm the strength and I’ll buy even more on the eventual dip.
If you are long from lower levels I would consider taking some profits off the table now to prevent yourself from giving up any of your gains.
“I made all my money selling to soon.” ~ JP Morgan
I like Silver’s chart a tad better from a technical aspect as it’s base that it’s been building since last September seems a little more stable. The RSI trendline has been steadily moving higher as the price has been trending higher which is very bullish.
I think we’re a tad overbought here and will be looking to get long stocks such as Pan American Silvery (PAAS), Silver Wheaton Corp (SLW), and Silver Standard Res (SSRI) when we pullback or move sideways for a week or two.
This was a guest post by Jeff Pierce (Track his trades on Covestor.com). Jeff is a full time trader based out of Vancouver Canada. Read his blog at zentrader.ca.
