Still Waiting on Precious Metals

By | December 11, 2014

It’s been three months since I’ve commented on gold (GLD) and gold stocks (GDX). The reason is that precious metals have mostly been falling and momentum on both StockTwits and Twitter haven’t painted a clear picture. The indicators show that traders have been chasing and sentiment gold is currently based more on emotion than anything else. I see a lot of talk on the streams about gold bottoming, but long time readers know I don’t like to catch falling knives. I prefer to make low risk trades that have a solid setup.

An example of a solid setup was the failed trade for GDX last August (slight gain, but couldn’t get any momentum). In early August the ETF had painted two higher lows and was consolidating in a sideways pattern right above its 50 and 200 day moving averages. At the same time momentum from social media was confirming the price move with higher lows. On 8/4/14 Twitter momentum broke higher creating a buy signal. Unfortunately, neither price nor momentum were able to hold a confirming up trend. On 8/22/14 we closed the trade with a tiny gain.

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Since then we’ve been waiting for another good long setup, but it hasn’t occurred. Instead, momentum has mostly mirrored price. This indicates chasing…and that is not an environment where low risk trades are made. Gold may be bottoming, but I prefer to wait for a clear signal before making a trade.

On thing to note about Twitter momentum for GLD is that it is at an overbought level that has preceded dips in the past. This next dip might give us the setup we’re waiting for. Until then, patience, patience, patience.

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