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Gold Remains in Consolidation

With Gold’s failure at $1800, it should be obvious that the market is in a protracted consolidation. This is actually similar to 2006-2007 and it is something we wrote about in a missive in early January. At the time, Gold had bottomed and had the luxury of very strong support nearby. We believed Gold would be range bound, but because it was emerging from support, it would have an upward bias. With Gold’s failure at $1800, now we can say range-bound with a downward bias.

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 $1600-$1650.

After a rip roaring two year period in which Gold advanced from about $950 to $1900, 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 $1600-$1650 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. If you’d be interested in professional guidance in this endeavour then we invite you to learn more about our service.

Jordan Roy-Byrne, CMT
The Daily Gold

4 Responses to Gold Remains in Consolidation

  1. Wcfeader 03/08/2012 at 7:06 pm #

    Good advice, but…I’ve seen one of my tracking portfolios go down heaps – in fact from the day I initiated it it has lost money and it lost a lot more than I ever did because I bailed out. Junior gold stocks are said to be the most volatile group in the world, and I agree. Junior gold stocks are virtually the first ‘go to’ asset in times of turmoil and this time won’t be any different. Truth is there could be considerably more downside than what you are expecting.

  2. Quincerdog 03/10/2012 at 3:28 am #

    Wall of worry….through out the baby with the bath water. I will buy quality stocks at reduced prices and sit tight. Thanks to the banksters although some should be shot with a ball of their own excrement.

  3. Quincerdog 03/10/2012 at 3:42 am #

         o.k. I can’t spell. Should be throw out the baby with the bath water. Just enjoying a whiskey on a Friday night and thinking about how a few years from now, silver will look like a screaming deal when looking in the rear view mirror of time. It is such a fantastic metal with growing possibilities and millions of non recoverable ounces being consumed annually. What happened to palladium with growing industrial demand? Silver is also monetary and yes, you can drink it too in special formulation to fight off some viruses
         .Fiat currency in present form is going to resemble toilet paper soon at the rate of growth. What an opportunity to buy mid tier quality stocks and some well researched penny stocks for added excitement.
         Buy companies with good management, strong financing in place, good geographic location with successful neighboring mines and measured promotion.
         I think one should also have a good adviser like Jordan and at times you can take some money off the table but if you select well you can sleep at night and not get so freaked out on the wall of worry.


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