Gold Price Reaction: Key Investor Tactics

July 28, 2020
President of Graceland Investment Management

Gold has arrived at significant resistance in the $1900-$2000 zone. Investors need a solid plan of action to deal with the intense volatility that is currently enveloping the market.

The December futures gold chart.

In 2011, a key futures contract traded at about $2000. That’s a significant round number, and the gold price is now recoiling from that same $2000 price zone.

Basis this popular August contract, gold made a new high, as it did in the spot (cash) market.

Gold tends to react violently at round numbers like $500, $1000, and $2000. When gold makes its way to $3000, more “price violence” should be expected. What about tactics for today, at $2000?

Well, nervous investors can buy put options on gold, silver, and mining stocks. That’s the simplest way to protect a portfolio from a big drawdown. It’s a lot like buying fire insurance for a house. It doesn’t cost a lot, but there’s a lot of protection for a modest outlay of capital.

Not all investors are worried, and those looking to buy can wait for a deeper correction, a fresh high… or just take the plunge and buy this morning’s dip!

The GDX “staircase” chart.

The important pattern of higher highs and higher lows is intact. Dip buyers could buy right now or wait for just above the $40 area, with an optional stoploss at $40.

As long as gold trades at $1800 or higher, I expect
GDX will ultimately make a new all-time high.

That’s because the miners have re-invented themselves as shareholder-friendly cash cows, and lots of money managers want in on the action!

What about silver?

Silver was rising in a narrow channel and surged out of the channel. I suggested the surge would reach my $26 target price, and it did.

Like $2000 for gold, $26 is significant resistance for silver.

While a pause is likely, the good news is that a bigger channel is now in play. A move above $26 likely sees silver rise to my next target price of $35.

The important SIL ETF chart.

SIL is poised to stage a breakout from a gargantuan box pattern that covers the price zone between $15 and $50.

Like $2000 for gold, $50 is a round number for SIL, and a reaction is expected. A breakout over $50 would launch SIL toward my $85 target zone, which is also the all-time high for this ETF.

The pause for gold, silver, and the miners right now is both technical and fundamental. From a fundamental perspective, most of the bad Corona news is priced into the market, and nothing important has happened in geopolitics to “juice” the 2021-2025 war cycle.

The disgusting government debt growth continues unabated, but there are no fresh surprises at the present time.

Gold was crushed in 2013 by the Indian government’s relentless import duty hikes. Indian demand then was enormous, and the loss of it devastated the market.

In contrast, Indian demand in the official market is almost negligible right now, and the current monsoon season has been superb. Farmers are expecting the best harvest in many years.

The current pullback/consolidation in the gold price should see them take decent buy-side action in the physical market, especially if it lasts for several weeks.

In a nutshell, the $2000 area produced a significant reaction in the gold price in 2011-2013. Today, gold has a solid technical and fundamental floor at about $1800. Reactions in the price are quite orderly and can be bought with confidence!

Special Offer For Gold-Eagle Readers: Please send me an Email to freereports4@gracelandupdates.com and I’ll send you my free “Cream Of The ETF Crop!” report. I highlight ten of the top stocks in the GOAU, GDXJ, and SILJ ETFs, with key tactics for eager investors!

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

Risks, Disclaimers, Legal

Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualified investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

Are You Prepared?

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Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas.  He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks.  Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis.  Website: www.gracelandupdates.com.

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.

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