The Gold roller coaster ride continues and Gold has now sold off from its high on August 28th of $1434 per ounce, down to $1304.60 on Friday Sept 13th. Evidently Gold didn’t like Friday the 13th! How are investors supposed to make profits in these volatile markets when Gold drops over $130 per ounce or almost 10% in about two weeks, ouch! The answer is embracing the volatility and learning to trade the markets as we discuss every week in our market analysis.
So is Gold Finished Rallying? This week’s chart looks familiar as it is the same chart we shared last week however the price of Gold has dropped and has now entered one of our Bear Trap areas. We’ve discussed Trap areas many times but just to make sure everyone understands this important concept we’ll describe a Bear Trap area again. This is an area where price breaks below a previous low aka support. When price breaks lower than this support area buyers who entered higher up “paid top dollar” finally panic out of their position due to experiencing a large loss. These areas have a high probability of selling exhaustion due to everyone who wants or needs to sell doing so leaving more buyers than sellers. This imbalance of buyers outnumbering sellers will cause price to rise again just as the majority of investors/traders who paid top dollar panic sell out of their positions.
So now that Gold is in a Bear Trap area does this answer our question, is Gold Finished Rallying? Does this mean it’s finally time to buy some Gold? Not quite yet, instead of being in the habit of stepping in front of freight trains we want price to prove it’s moving higher first. Once price starts to move higher then we will hit the buy button and jump on for the ride higher. This is an important concept that traders/investors overlook and will do damage to an account in a hurry, especially when combined with not determining the amount risked before entering a trade. I will be looking for a bullish candlestick reversal pattern before hitting the buy button. As of now all price bars on Gold are red, which obviously does not mean price is moving higher yet.
Also on the bottom is a chart of Platinum with an orange circle plotted around the recent price action. This is the type of candlestick/price pattern we would like to see in Gold before hitting the buy button. This pattern is called a Morning Star, and currently the pattern is being confirmed by a candle higher up. Of course Mondays candle/price bar must close higher than the previous candles high so we must wait until Mondays close before determining if Platinum is off to the races higher. Platinum often leads Gold so let’s keep an eye on Gold and Platinum and see if this Gold sell off is a buying opportunity or if Gold has more downside to go.