Gold: Happy New Year?

Gold price sales offer opportunity but patience is required.  I like to see a market swoon of at least $50/ounce before buying any fresh medium-term gold or related positions. Most amateur gold investors should wait for $100/ounce declines before buying or use very tight stop-losses to protect their capital.

When buying, it’s important that investors have strong hands accompanying them, and the smaller dips don’t attract Chindian dealer or COMEX commercial trader buying in much size. 

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Gold has rallied about $130 since the August lows of about $1175. A consolidation or correction becomes more likely as a rally extends in both price and time. That doesn’t mean a correction has to happen now, but it does mean investors need to get emotionally prepared for it to happen.

A 50% correction would see gold trade near the $1250 area and that would represent about an $80 price sale from the $1330 area highs. That’s not likely enough of a pullback to guarantee significant Chindian dealer and COMEX commercial buying of size. If gold’s rally continued to $1350 before the correction began, a pullback to $1250 would become an important buying area for long term investors.

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Some “head & shoulder topping” action is beginning to present itself. Charts are created by fundamentals, and while the big picture for gold is truly spectacular, the short-term picture is somewhat negative. That’s because the Chinese New Year holiday is in play. China’s gold market is closed this week, and it’s an important cog in the gold demand wheel.

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While it’s true that Chinese demand tends to swoon at this time of year, this year I believe it’s unlikely to produce anything more than a modest and healthy correction.  I’m already quite impressed with the orderly nature of the sell-off.

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