Man, you can’t turn on the TV or hit a financial website without someone talking about gold. Geeze. For years, it was just something you put around your neck to hang on your chest hair or used to strap a rock to your lady friend’s finger. These days, there are commercials from companies wanting to buy your class ring and a thousand blogs giving you numerous reasons why you need to have gold in your portfolio and not just on your teeth.
Ug.
I find that defining my purpose as a trader is the first step in determining if all of the gold noise is important to me. Can I really buy enough gold to save my ass if the United States tanks or the dollar becomes worthless? Likely not, and I think I’ll have more to worry about if the economy tanks than whether I have a enough gold to trade for a horse and three pigs.
I also know, as a trader, that I cannot predict the future. Everyone talks about long term diversification to protect you against the what-ifs of the world. I’m not a big fan of that philosophy and would rather manage what’s close to me – in other words – I want to diversify my portfolio on a daily basis when I KNOW what’s going on. My investment strategy involves preparing myself for various short term scenarios and then jumping on the one that plays out.
OK – back to gold. I don’t care where gold is going in 6 months. I don’t care about its correlation to the overall stock market, oil, etc. What do I care about? Where is gold going tomorrow and where are the best opportunities (miners, etc.) to profit from on the move. So, I’m reducing the noise by looking at gold related charts and playing them if they are setup. boom – that’s it.
The big chart – I always start with GLD. I base all of my trades in this sector on GLD (kind of like FCX for copper). If GLD is setup, I’ll look for gold trades. I rarely trade GLD – why? gap ups and there are better places to scalp.
Take a look at the chart below. Right now, we’re in sell pattern. One of two things is going to happen.. GLD will reverse on SMA20 (where it sits now), or will likely fall to 104. Look at the MACD, RSI14, and Full Sto. All pointing downwards with room to go. Notice how the Full Sto tops out and tends to run all the way down below 20 before recovering. I would actually prefer this since it would be at historical support levels. We’ll see. My guess is GLD falls through SMA20 and heads towards 104.
