This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

It's Time to Buy Gold for a Trade

NEW YORK ( TheStreet) -- Back on April 26, I wrote about the "Death Cross" for gold in "Gold Under a Death Cross, How to Trade Mining Stocks."



Today we will take a longer term view of gold looking at the monthly chart going back to 1980, then look at the daily chart for the ETF with the symbol GLD to show that a short-term oversold rebound appears likely soon.

On April 26, the day I wrote the above story, Comex gold closed at $1,660.50 the Troy ounce giving traders and investors the opportunity to take advantage of the "Death Cross" by selling gold at my semiannual pivot at $1,659.40. Gold closed below my annual pivot at $1575.8, on Monday, May 14 which indicates risk to my monthly value level for May at $1,525.80, and this morning's low has been $1526.7. The $1,535 to $1,525 area appears the right price to start a long position or to cover a portion of a short position in the precious metal. There's an 85% chance for gold futures to return to the annual pivot at $1,575.80.

This is a short-term oversold rebound not a buy signal for the long term because the monthly chart for Comex gold is negative. As shown on the chart below, gold began 1980 with a spike to $873 the Troy ounce that January. Then gold moved sideways to down until the second half of 1999 with a low of $253.80 in August 1999.

Then in April 2003 gold started an up trend above its 120-month simple moving average. The parabolic bubble began to inflate in October 2009 with a breakout above the $1,000 per Troy ounce level. In a parabolic move, you never know how high a market can go, but you know that when the bubble breaks the downside is painful.

The all-time high at $1,923.70 was set on Sept. 6, 2011 and the low that month on Sept. 26 was $1,535 as the gold bubble popped by 20.2%. On Dec. 29, 2011 gold hit a slightly lower low at $1523.9. This is another reason to buy gold in the $1,535 to $1,525 range, which includes my monthly value level at $1,525.90.

Chart Courtesy of Thomson/Reuters

Trading Gold in the stock market

There are many ways to buy gold including bullion and coins. Bullion can be expensive to carry considering storage and insurance. Coins have a wide bid versus offer spread, so they are difficult to trade. You can "buy and trade" gold in the futures market, but I recommend trading SPDR Gold Trust (GLD) and here's a look at the daily chart.

Chart Courtesy of Thomson/Reuters

The daily chart for GLD is oversold with the "Death Cross" shown beginning on April 17. To review the death cross occurs when the 50-day simple moving average falls below the 200-day. This is shown on the chart with cyan line (50-day) crossing below the green line (200-day). With GLD closing Tuesday at $149.74, I show my monthly value level at $148.28, an annual pivot at $151.22 and semiannual risky level at $159.05.

Conclusion: With gold back to the base of the parabolic move, that preceded the bubble, the time and price are right to cover shorts and begin a "buy and trade" strategy using GLD.

With my "buy and trade" strategy, you are always adding to positions on weakness to a Value Level and reducing positions on strength to a Risky Level. This is not labor-intensive. You simply enter "Good Until Canceled" GTC Limit Orders to buy at the value level and sell at the risky level. A "buy and trade" strategy allows you to capture the price volatility as stocks move up and down.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
GLD $115.60 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%
GOOG $540.11 0.00%
TSLA $247.73 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs