How To Tell If Gold's Rally Is For Real

January 18, 2017

Within the next day or two we should have more evidence to tell us whether the rally begun in late December is the real deal. If bulls have any moxie, they’ll push this vehicle above the 1223.50 peak (see inset) without much ado. Still better would be an un-paused thrust exceeding the second, 1236.10. Our rule for bull markets is that each completed up-thrust should pierce an old high or a layer of supply. The effect is to refresh the bullish energy of the daily and intraday charts.

That’s the least we should expect of a rally if we are to presume it has sufficient energy to continue. Another point to consider: Although the futures have tripped a theoretical buy signal tied to a 1445.90 target that sits well above these levels, imagining gold at those heights is not what should inform our trading right now. That would amount to reckless optimism; our strategy should be skeptical and cautious. Practically speaking, it suggests we will need to wait for a mechanical buy signal on a pullback to the green line before we jump in. Even then, the $8000 per contract initial risk this would imply impels us to substitute a ‘camouflage’ entry strategy once the signal is given. However we might proceed, theoretical entry risk should be held to no more than $100-$150 per contract.

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14 karat gold is 58.5% pure gold