International gold priced dropped below 1280 on April 16. We’ve been pointing at the 1285/1280 price area as important support for a long time, as history shows it is significant time and again.
(credit Fidelity.com)
This is the 1-year chart of GLD, with the red line indicating the GLD equivalent of the 1280/1285 price. You can see that support held all during 2019 up to this point, bouncing off several times. Now gold has fallen down through support and seems to be establishing a small trading range just below resistance.
So is the 1280/1285 range important again now?
We would argue Yes, using the simple Econ 101 argument. When something is in demand the price rises. Psychological theory says that when people think something is expensive, they stay away until they recognize the rising price trend. Then the herd mentality kicks in, and rising prices actually lure in more demand.
When something is not in demand, price stagnates or falls. Traders see the falling price and jump on the short side, driving prices down even further. It’s simple market and trading logic – following the herd (with a slight lag as “insurance”) usually leads to better results than trying to guess where the herd is going. (The final piece to the puzzle is recognizing tops and bottoms, but that’s a subject for another day.)
Right now it looks like we’re in the second case, not the first. Prices didn’t keep rising, so enough new people weren’t lured into the market to drive prices up. And when prices fell traders started selling. Note the several tall red volume bars over the last two weeks – not a good sign.
Commodity traders have a rule of thumb that when a price stays below support for 3 days that support becomes resistance. And gold is now well past 3 days under 1285.
So now we will call the 1280/1285 range resistance. Prices will have to break up through that level to have any chance of heading higher.
A new, lower resistance level is not what gold bulls want to see. What it means is one more hurdle on the way up, one more delay in the proceedings. Your Gold Enthusiast was hoping gold would stay in the 1285-1300 range until the majority of gold stocks report earnings over the next 10 days. Prices below 1280 will force honest reports to lower future revenue projections slightly, which won’t make for great news.
Looks like we have a bit longer to wait for gold to gather steam. We won’t take a guess at how much longer until after we see the biggies’ earnings reports.
Signed, The Gold Enthusiast
DISCLAIMER: The author has no positions in any mentioned securities. The author has small long-gold holdings in NUGT, JNUG and a few junior miners. He is not expecting to trade any of these in the next 48 hours.
About the Author: Mike Hammer
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group More...
