Gold Remains in Consolidation
At a minimum, expect three to five more months of consolidation. But fear not -- you will become better at investing as a result.
Before we get to today, I wanted to look at the 2006-2007 consolidation once again. Note that gold had a nice rally from point C to point D. After a more than 50 retracement, gold rallied from point E to point F. The lows were clearly in but the consolidation continued for several more months.
A similar pattern to 2006-2007 continues to unfold. If the pattern continues then gold should bottom at point E, which is slightly above the 300-day moving average. The same happened in early 2007.
Judging from the price action and moving averages, gold should have very strong support at $1,600-$1,650.
After a rip-roaring two-year period in which gold advanced from about $950 to $1,900, the metal is in consolidation and digestion mode. After strong advances a market needs time to attract new buyers and new demand. Profits are taken and resistance emerges. This is why and how a consolidation develops. Then the market moves back and forth between supply and demand. Gold has been consolidating for six months. That is hardly enough to digest a 24-month move. At a minimum, we'd expect three more months of consolidation and perhaps five.
Fear not, gold investor. You should appreciate these consolidations. They will make you a better investor. You will learn how to buy lows and not get excited near highs. Buying lows is exactly what you should focus on. Gold has strong support at $1,600-$1,650 and that is an area to accumulate. Make a short list of your favorite companies and evaluate potential high reward/risk target prices. Now is the time to focus on your favorites and get ready to buy -- not when the market is surging to new highs.
Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
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