The price of gold has been trading sideways to lower during the last couple months. This is typical of the gold market after it has a strong run higher and it just can’t get the steady flow of “bad” news to support the ever-increasing prices. Prices have started to bounce slightly in this long-term bull market, but this might not be the ideal spot to jump back on board.

Risk On – Risk Off

Gold thrives on situations that cause stress to the economy and financial markets. However, these periods or events often come and go in waves. More importantly, the underlying tide for the rise in gold over the years has been the QE programs by the Fed and global economic issues. Debt is abundant and staggering around the world and the Central Banks are adding more fuel to the fire. Flooding the economies with liquidity and driving interest rates into negative territory is no doubt an attractive recipe for buying gold.  

QE is also an attractive reason for Wall Street to buy stocks. That somewhat distorts the picture for gold as investors have a stronger appetite for risk and gold loses some of its luster. As we have seen, the stock market has been strong and basically moves higher every day, while gold has gone quiet and meanders lower. 

Fears of recession in the US have waned and political issues have become business as usual. I believe it is highly unlikely President Trump will be removed from office and the markets realize that. The trade issues with China seem to be the biggest outside factor to cause reactions in the markets. I do believe there will be ups and downs, but the process is on a positive path.

The current environment is not the best for gold to become the frontrunner once again. The long-term, big picture setup certainly favors gold in my opinion. However, it may be difficult for gold to rally much until investors become more concerned with risk in the economy and financial markets.

Timing a Long Entry in Gold

I continue to see gold as a long-term buy, but most traders have a shorter timeframe perspective. This is especially true for futures traders and stock option traders. A good rule for trading is to buy dips in markets that are in long-term uptrends. Gold fits that criteria and there are some key areas to look for buying opportunities on the charts.

I typically look for pullbacks to moving averages, chart formations, Fibonacci retracements and oversold levels. A combination of signals lining up is even better. Currently, gold has bounced off a minor 38% retracement. I see this level as a possible short-term trade to the upside. I am more interested in the $1,426 to 1,429 area. There is a 38% and 50% Fibonacci retracement confluence in this area.

This could line up well, as I believe gold could fall a little deeper and the timing could be right. I would expect the stock market to remain strong into the end of the year due to favorable economic conditions and less global worries. That could change at the first of the year and open the door for gold to be more of a safe haven investment.

There is always the risk of missing out on the trade. Gold could rally from here, but I have to stick with my analysis and take higher probability trades. There will always be another trade.