The die-hard gold bulls are reeling from the recent false breakout in the yellow metal and subsequent decline. But I’m not a bit surprised.
In fact, our proprietary E-Wave cycle model has been telling us for several weeks to expect another correction in gold before the next big buying opportunity.
And here we are, right on cue with the forecast.
Disappointing the gold bulls, the yellow metal closed last week at $1,274.90 per ounce, down 0.6% for the week. It even traded as low as $1,262.80 on Friday.
That’s a decline of more than 6% already since the early September peak. And this correction is likely not yet over …
First, however, I do expect gold to bounce in the near term. We should see a tradeable rally back to previous support, which is now resistance. (I’ll give you those new key levels to watch in just a moment.)
But then expect gold to roll over again and make lower lows, at least into month-end. And most likely into November.
Aside from our cycle analysis, plus my own technical insights, there is also plenty of fundamental support for a correction in gold …
Namely, sentiment. It’s still too bullish!
Time and again I’ve said: The best time to buy gold is when nobody wants it. Or, better yet, when other investors are unloading it. But just the opposite happened at the high above $1,360 … retail investors were buying paper gold with both hands.
In fact, just as gold peaked in September, more than $2 billion flowed into the largest and most liquid ETF that tracks gold, the SPDR Gold Trust (GLD). Those were the largest inflows all year!
In other words, retail investors were pilling in on the false breakout. And they got burned. But my regular readers were hopefully spared.
Here’s the roadmap to watch for gold going forward …
First, based on the trading volume and price momentum studies I rely on, in addition to the cycles, we’re likely to get a counter-trend rally soon, as I mentioned above.
Second, as the rally unfolds, look for gold to move up to initial resistance at $1,280-$1,300 an ounce, with more important resistance around $1,320. It could extend further if geopolitical tensions intensify.
Third, after that oversold bounce however, it’s likely the precious metal will roll over once again to complete a deeper correction.
How low will gold go?
It’s difficult to say, with so many cross-currents in the markets right now. But I would not be surprised to see gold retest support at $1,250 an ounce. Then the yellow metal should stabilize and build energy for the next, bigger move higher.
Bottom line: If you’re a short-term trader, with access to the Edelson Institute’s daily timing signals, you should be able to profit from the counter-trend rally in gold, and the subsequent decline, just as my members have.
But you’ll have to be very nimble. Otherwise, it’s best to keep your powder dry and wait patiently for a better buying opportunity later this year. And keep reading this e-letter for more updates on gold.