Based on today’s price action, I’m wondering if the price of gold is overdue to react to its triple top from late 2010 through early 2011. Take a look at the GLD SPDR Gold Trust ETF over the past 6 months:
I’d say gold looks pretty triple-toppy between early November and early January. But investors forgive Gold’s neckline piercing as just a one night stand with risk — at least this time – and the bullish trend immediately resumes.
In the last 10 days, gold prices formed another almost/kind of-triple top, maybe a sloppy one, but failed to pierce the proverbial neckline (not yet, anyway – notice how investors knew right where the support level was today):
The point is that gold keeps flirting with a classic predictor of a correction, but shrugged it off earlier in 2011, similar to the way equity markets tried to do – at least for awhile. What many investors want to know is, does the recent price action suggest a good entry point for investors looking to initiate or add to long-term positions?
A 1-year chart of gold shows that it’s displayed a tendency to bounce off of previous lows and move sharply higher:
If gold bounces off previous support as it has done recently, $1,270-$1,280-ish looks like a safe entry point range for starting or adding to long-term positions. Keep an eye on short-term technicals to see if it will correct that low, however — markets have done a great job of shrugging off bad news in the last 2 years, and it’s not out of the question that we’ll rally on Friday off of Thursday’s price declines. If that happens, I recommend being patient and letting gold prices come back to you, just a little more at least.
One final point: it’s interesting to note that a price decline from recent highs would be pretty much right on the mark for a classic minimum correction threshold of -10%. I’d be a long-term buyer in the $1,270-$1,280 range.