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How to Profit as Gold and Silver Pull Back


Look for gold to bottom over the next week or two, then rally to the $1,775 area.

A few weeks ago I wrote about how gold was starting to top and that everyone should expect a very sharp drop to the low $1,600 area. How I came to this conclusion was though the use of inter-market analysis combining price patterns, gold futures volume, the dollar index and market sentiment. This allowed me to understand what the majority of other traders/investors were thinking and feeling. By knowing each of these market variables and crowd behavior I can accurately see into the future a few days with a high probability of success, and most importantly with low downside risk.

(You can view Part 1 on how I properly forecasted that gold would fall sharply in August here: Dollar on the Verge of a Relief Rally.)

At the time when I forecasted gold to reach the low $1,600 area, gold was still building the top pattern so I could not say how long a recovering would likely take nor did I know exactly when to re-enter a long position. But now that we have seen how gold arrived at my target price I can form a new forecast.

Spot Gold Price Forecast -- Daily Chart:

The gold chart below clearly shows rising volatility along with my topping pattern of three surges to new highs. It was August 31 when I warned subscribers and my followers that gold was about to top and that everyone should be taking profits or at least tightening their stops to lock in gains. Only three days later gold topped and it has not stopped falling since.

On August 8 gold had a large opening gap to the upside. This means the price opened the next day much higher from where it closed the previous session. It's important to note that gaps especially for gold almost always get filled within a couple months. Seeing this gave me a solid reason to think that gold should pull back to this level during the next big correction in price.

Also during the month of August gold had two pullbacks only to continue to make the third and final high. This told me that when the top is put in place there was a very high probability we would see the price of gold drop below both of August's lows, and that would trigger stop orders sending the market sharply lower.

Now that we are seeing the stops being flushed out of the market it means the majority of speculative traders have exited their positions. So speculative traders who caused the large surge in gold to take place are now out. Once all the speculative traders have exited, which should take place in the coming week or two, we can expect some type of bounce or rally. I will keep a close eye on the intraday charts for subscribers as we near a potentially major trade setup.

Where Are We in This Gold Bull Market?

Well I feel gold is more fairly priced between $1,632-$1,660 area. Currently gold is trading at $1,660, but if things play out like I have seen in the past we just may get one more dip this week to the $1,600 area before gold truly puts in a bottom. Because gold went from a new high all the way down to Friday's panic selling washout instead of a controlled ABC correction I feel a bottom will be more of a one-day event. This type of bottom carries more risk and is more difficult to time and trade. So scaling in with a small position at this level and adding on a drop to $1,630 then $1,600 could prove to be the safest way into a gold position.

Looking forward I see gold bottoming over the next week or two then a nice relief rally to the $1,775 area. How gold arrives there will alter my next gold forecast, so let's wait and see how things unfold.
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No positions in stocks mentioned.

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