With many precious metals making new 52-week highs and gold making new all-time highs, there is a lot of buzz surrounding the commodity sector.
So now must be a great time to get in on the gold rush, right? Not so fast.
It’s true that gold has risen for nine straight years without a single year of negative returns. (Do you know of another asset class that can make that claim?) But if you haven’t started trading or investing in gold or other precious metals and you’re wondering if now is a good time to start, please keep reading.
I’m assuming that many of you didn’t see or, perhaps, just didn’t heed my “go long gold now” advice at the end of August. But now that the gold story can be found on the front page of every newspaper and is the hot topic on every financial news show, you’re likely looking for a good point to make your entry. Hold your horses …
Gold has hit my short-term target, and the odds are high that we will see a correction in the metal over the next few weeks. So the best thing you can do right now is take a step back and let it correct.
As you can see in the three-month chart of gold below, it has just completed an expanding triangle, also known as a broadening top or a megaphone top. This is a relatively rare formation that takes on a shape that is opposite of that of the bullish symmetrical triangle.
The pattern develops after a strong advance in an asset price and can last several weeks or even a few months. It is formed when a series of higher highs and lower lows are made, and usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low.
The expanding triangle is a bearish pattern, but in strong bull markets — like we are seeing in gold long term — it can often turn into a continuation pattern. This means that the temporary diversion in the behavior of a trend (i.e., the likely upcoming pullback) will eventually continue on its existing trend (i.e., up).
Although there’s no way to be 100% certain that gold will pull back here before pushing higher, the current technical pattern suggests that chances are high that we could see gold drop to as low as the moving averages (red and blue lines in the chart above), which are in the $1,060 to $1,080 range.
Now, like I said, I am bullish on gold in the intermediate and long term.
My short-term target for gold has already been hit, buy my intermediate-term target is $1,300 to $1,500, and longer term, I think we’ll see $2,000 or higher. But I don’t see the sense in getting in here to ride gold down. It’s better for you wait for the next good buying opportunity, which I will be sure to alert you to.
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All That Glitters …
If gold is not a good buy right now, what about some of the other precious metals?
As for platinum, I do not think it will experience the same sort of parabolic rally we’ll see in gold in the future. However, I also do not think it’s as overbought short term as gold is, and it could be a little longer before we see a correction in this metal.
That said, gold is the king of all commodities, and because platinum is a metal, it likely will follow gold’s lead in the short and long term.
Palladium is also currently in a parabolic uptrend over the longer term, but it, too, will likely experience a healthy correction during the next couple of weeks.
You Haven’t Missed the Boat
In the case of any bull market, corrections are healthy. But that doesn’t mean pullbacks are any fun, especially if you’ve just jumped onboard. Rest assured, you haven’t missed the bull run in gold, but I’d hate to see you jump in now and cash out with losses because your timing was off.
So hold off on putting any money in gold or other precious metals for the moment, and use this time wisely to study up on the sector.
Check out some of my past articles (Don’t Miss the Bull Run in Gold, 3 Golden Option Opportunities and A Once-in-a-Lifetime Opportunity to Profit in Gold) and look to my future reports on OptionsZone that will help you capitalize on the explosive profits we will see in this sector again soon.
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