Monday, October 14, 2013

Gold Price Watch: The Market Is Terrified of a Broken Neck!

As I write this, gold is up $10 an ounce, but the big action came on Friday. That's when gold tested the "neckline" of a head-and-shoulders pattern. This really worries gold traders, because if gold breaks this neckline convincingly, we could see another 10% to 15% downside in gold.

The test came on rising volume, which in this case is bearish. Measuring the potential move down in dollar terms, I would look for a drop to $1,110 to $1,125.

In this scenario, you don't want to be holding any miners that can't survive at $1,110 per ounce, because the market will sell them hard.  But all gold miners should come under pressure, so there may not be any good options on the bullish side in the short-term. 

If you've been reading my recent posts, you know I think the smart thing to do now is invest in energy.

As for gold, from a bullish perspective, what a broken neckline of a head-and-shoulders pattern means is that we may be coming up to an EXCELLENT buying opportunity.

Think of it.  All the gold miners you ever wanted being sold for pennies on the dollar.  If you are bullish metals longer-term, the bottom that comes after this move is what you've been waiting for.

The bottom will be a moving target. 

In any case, the test isn't over.  And let's look at some gold fundamentals ...

This is all stuff to keep in mind as we see gold zig and zag around that neckline this week. Will it break, or are we at the beginning of the next rally? Stay tuned.