Issue #62
Dear Member,
This morning gold is trading lower, hovering back and forth around the $1,338 level, the critical level that I mentioned previously.
Gold has broken above it, reaching as high as $1,347 this morning, but what we really need to see is a closing above $1,338 today to confirm a short-term uptrend and a run to at least the $1,400 resistance area, and possibly higher.
That said, I feel it’s very important that I clarify my position on gold and what my models are now telling me. Given the latest rally …
Gold could be bottoming. I can’t tell you precisely when or at what price, but I have every reason to believe that gold is now in the timeframe for a bottom, and a major bottom at that.
In fact, it may have already bottomed at $1,178 back in late June. That is indeed possible. Or, after a rally, it may dip back to near $1,178 one last time. Or, it may just explode higher here and now.
It is impossible for me to say with any certainty. For anyone to say.
All I can tell you is, again, that all of my models indicate that gold is very near, or already may have seen, an important bottom and that …
Second, trying to time the exact day, or even the exact week, and the exact price would simply be foolish.
That said, let me give you the three scenarios I see ahead for gold. If it seems like I am talking out of both sides of my mouth, let me assure you that I am not.
I am merely giving you the three most likely scenarios for gold going forward, scenarios that you will need to keep in mind to get properly positioned so that you can minimize risk and maximize your potential profits.
To invest or trade gold now without having these scenarios in mind is simply foolish.
Scenario #1: Gold’s low at $1,178 in late June was the major bottom. In this scenario, gold must now confirm it by moving and closing above $1,338 today, then $1,449.50 on a Friday, weekly basis followed by a weekly close above $1,605.50.
So far, gold has taken out important short-term resistance at the $1,338 level. That does indeed imply a further rally, with the next important level of resistance at the $1,400 level, followed by $1,449.50. But as mentioned previously, we need to a close above $1,338 today to confirm it.
This is now becoming the higher probability projection. As in life though, nothing is certain, so we must keep an open mind toward …
Scenario #2: Gold continues to rally, as high as $1,605.50, but fails to close above $1,449.50 or $1,605.50 on a weekly closing basis.
Gold then trades back down, even as low as the $1,265 level in early 2014, and then begins another move higher, one that eventually gives us the buy signals we need to confirm the end of the bear market and the beginning of the next leg up. The $1,178 June 2013 low holds, but gold swings wildly before taking off for good.
Scenario #3: Gold continues to rally, as high as $1,605.50, but fails to close above either $1,449.50 or $1,605.50 on a weekly closing basis and then collapses into a major NEW low in 2014.
Whereas a new low below $1,178 was previously the highest probability, a new low below $1,178 is now the lowest probability scenario. But we simply cannot throw it out the window.
In this scenario, we see a decent rally in the weeks ahead, but the rally fails to issue major confirming buy signals, and instead, gold trades lower as in Scenario #2 above.
But instead of holding major support at the $1,265 level early next year, gold crashes right through the June 2013 low at $1,178 and makes a new low down at major system support at $1,035 to $1,050 levels.
Now, I fully realize that you think I’m hedging my gold forecast or talking out of both sides of my mouth. Or that you like Scenario #1, the most bullish, and you don’t like or agree with the other two scenarios.
That’s fine with me. I am not trying to win a popularity contest. I am not here to tell you what you want to hear. My job is to tell you what I see ahead based on my tried and true models and indicators, and without any bias.
To call it like I see it and precisely the way I would put my own money on the line, brings me to …
My upcoming trade:
Provided gold closes above $1,338 today in the nearest futures, the December 2013 contract, then next week I am going to act on the strategy — after you do — that I told you about in yesterday’s issue: Buying longer-dated call options on gold, but hedging them with either an inverse ETF or a call option on an inverse ETF.
That way, you will be positioned for a rally, but you will have insurance should gold fake us out.
Moreover, should gold follow either scenario #2 or #3 above, we will be in a position to profit from the long side of gold, getting out of our call option, and then profit from the downside in gold as well, legging out of the strategy with appropriate timing.
No matter what, I urge patience and emotional discipline right now. Those are always the two most important elements of successful trading and investing, especially near major market turning points.
Major market turning points offer tremendous opportunities to profit, but they are also the most dangerous. The markets never take any prisoners, so you want to make sure, through patience and emotional discipline as well as the right strategies, that you’re not going to be one of its victims.
This is where the gold market stands right now. I wish it were clearer than this. But suffice it to say that at important major turning points, all markets become a bit cloudy, gold especially. Hence, the need for recognizing what a market can and can’t do, and to develop prudent strategies accordingly.
As for silver, I do not believe it has bottomed. Yes, we may see a rally in silver along with gold and I will play it. But if gold fails to provide confirmation that a final low is in place, we could easily see silver plummet to a new low, even if gold holds its prior low at the $1,178 level.
Same for mining shares. My models tell me they have not yet bottomed. Most mining share ETFs have taken out that important cyclical low they made back on August 6. That means lower lows are possible.
So like silver, it is indeed possible that mining shares may rally a bit, and then collapse anew, even if gold has already bottomed and even if gold stages a decent rally.
So for now, mining shares are not yet primed for major investment.
Bottom line: We are approaching a critical juncture and move in gold and we will want to hop on it with the right strategies. Make sure your account is ready to trade options.
Stay tuned and best wishes,
Larry
