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Tuesday, July 23, 2013

Gold At Critical Area

After its historic breakdown in June, Gold has now rallied all the way back to levels that had served as support for several months. This has a lot of the Gold bulls all excited as we start the new week. But can we really trust this rally? Should we? I’m still not convinced.
On the first day of Technical Analysis kindergarten, we are taught the theory of polarity. This is the one where former support then turns into resistance and vice versa. So when we look at this chart, should we ignore what we were taught on Day 1?
7-22-13 gc
I’ll say this: it’s certainly not a place where I would want to be buying. But shorting into this range is probably not the best idea either, at least not yet. To buy here is dangerous, in my opinion, because we’re running right into this former support. But we also have a downtrend line from the April highs. So there just seems to be too much overhead supply for my taste.
But to short here as the metal is ripping can be a tough trade as well. I’d at least let this thing try to break through and fail to have something to short against. This helps with the risk management. On the long side, if we do break this downtrend line, and do clear former support levels (both big IFs), then we’ll reevaluate and see if the long side of the Gold trade presents a favorable risk/reward.

But heading into the new week, there doesn’t seem to be anything to do here. At least not in the time frame we’re talking about in this post.

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