I want to take the time to talk about trading these moves in gold, especially since it appears a lot of people are confused by the gold market right now. First and foremost, you want to be on the right side of the trade. I suspect most of you are long gold or you wouldn’t be reading this blog. That being said, I know a lot of people are not maximizing gains on the long side because they are getting too nervous. There are those in the gold bug community who expect a big correction in stocks and gold. With that expectation, they are lightening up on their long positions, and some are even going short! I am not one to deride forecasts, since I make them all the time. But above all, you must respect price action. I believe now is not the time to get timid; it is the time to put your capital to work. Bottoms, like tops, are a process. A weekly close above $1350 brings us one step closer to carving out an intermediate term bottom.
The gold market is no different from any other market; it will always try to fake you out, especially before making a major move. You see this phenomenon all the time in gold. Right when people get into a trading mentality, gold embarks on a sustained rally- and the rally continues with hardly any pullbacks. Most people therefore lighten up way too early and start chasing.
I missed adding on the initial move down to $1320. No big deal. The important thing is that I didn’t magnify my error by chasing the market up. In bull markets, I will generally buy only on weakness. There are some exceptions, such as when gold breaks out above a long-term resistance level, but this is how I trade. Because of my “buy the dips” mentality, I was able to add at more or less the bottom in the latest correction. I could have added at the support level of $1360, but as I said in real-time, I thought I could get in at lower prices. You generally want to see downside momentum wane a bit before stepping in. When gold tagged the 50-day moving average and held, it was time to move in.
My hope is that you will not fear another 80% collapse in gold stocks. Will we have more corrections in the future? Of course. It’s just that I don’t see anything that suggests we are currently in a period of prolonged consolidation. I’m sure many of you are keeping an eye on the deteriorating situation in Europe. Believe me, they haven’t solved nothing. The IMF is historically a destroyer of economies. Europe will be no different. Hence the “risk” in gold remains to the upside. I’ll let everyone else get bearish on gold. As for me, I’m getting prepared for a monster push higher.
Source: Is the Correction in Gold Over?