The Gold Zone: Investors Need a Plan

  1. Gold has arrived at significant resistance in the $1900-$2000 zone.  Investors need a solid plan of action to deal with the intense volatility that is currently enveloping the market.
  2. Please click here now. Double-click to enlarge this December futures gold chart.
  3. In 2011, a key futures contract traded at about $2000.  That’s a significant round number, and the gold price is now recoiling from that same $2000 price zone.
  4. Please click here now. Double-click to enlarge.  Basis this popular August contract, gold made a new high, as it did in the spot (cash) market.
  5. Gold tends to react violently at round numbers like $500, $1000, and $2000.  When gold makes its way to $3000, more “price violence” should be expected.  What about tactics for today, at $2000?
  6. Well, nervous investors can buy put options on gold, silver, and mining stocks.  That’s the simplest way to protect a portfolio from a big drawdown.  It’s a lot like buying fire insurance for a house.  It doesn’t cost a lot, but there’s a lot of protection for a modest outlay of capital.
  7. Not all investors are worried, and those looking to buy can wait for a deeper correction, a fresh high… or just take the plunge and buy this morning’s dip!
  8.  Please click here now. Double-click to enlarge this GDX “staircase” chart.
  9. The important pattern of higher highs and higher lows is intact. Dip buyers could buy right now or wait for just above the $40 area, with an optional stoploss at $40.
  10. As long as gold trades at $1800 or higher, I expect GDX will ultimately make a new all-time high.
  11. That’s because the miners have re-invented themselves as shareholder-friendly cash cows, and lots of money managers want in on the action!
  12.  What about silver?  Please click here now. Double-click to enlarge.
  13. Silver was rising in a narrow channel and surged out of the channel.  I suggested the surge would reach my $26 target price, and it did.
  14. Like $2000 for gold, $26 is significant resistance for silver.
  15.   While a pause is likely, the good news is that a bigger channel is now in play.  A move above $26 likely sees silver rise to my next target price of $35.
  16. Please click here now. Double-click to enlarge this important SIL ETF chart.
  17. SIL is poised to stage a breakout from a gargantuan box pattern that covers the price zone between $15 and $50.
  18. Like $2000 for gold, $50 is a round number for SIL, and a reaction is expected.  A breakout over $50 would launch SIL toward my $85 target zone, which is also the all-time high for this ETF.
  19. The pause for gold, silver, and the miners right now is both technical and fundamental.  From a fundamental perspective, most of the bad Corona news is priced into the market, and nothing important has happened in geopolitics to “juice” the 2021-2025 war cycle.
  20. The disgusting government debt growth continues unabated, but there are no fresh surprises at the present time.
  21.  Gold was crushed in 2013 by the Indian government’s relentless import duty hikes.  Indian demand then was enormous, and the loss of it devastated the market.
  22. In contrast, Indian demand in the official market is almost negligible right now, and the current monsoon season has been superb.  Farmers are expecting the best harvest in many years.
  23. The current pullback/consolidation in the gold price should see them take decent buy-side action in the physical market, especially if it lasts for several weeks.
  24.  In a nutshell, the $2000 area produced a significant reaction in the gold price in 2011-2013.  Today, gold has a solid technical and fundamental floor at about $1800.  Reactions in the price are quite orderly and can be bought with confidence!

By Stewart Thomson

Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

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