The soaring dollar has made a lot things cheaper.
The rise of the dollar has added to the depth oil’s collapse.
Some of my friends are currently scouting out trips to Ireland and Kiev with the Euro down to $1.08 and the Ukrainian Hryvnia down 50%.
The soaring dollar has made gold cheaper too. Much cheaper.
The price of gold is now at it’s lowest point in five years.
Naturally, the “gold bugs” see it as as a great opportunity to stock up. Peter Schiff this morning, a prominent gold bug, has reiterated his call to buy gold. But they see every move - up or down - as a great time to buy.
We’re not saying they’re wrong. Gold will go up eventually. For our money though, we want to get in when the time is right. And we’ve got a lot of hard data to help us do just that.
Is It FINALLY Time to Buy Gold?
Gold has been in a multi-year bear market. The exchange traded fund which tracks the price of gold, the SPDR Gold Trust (GLD), hit an all-time high of $185.85 per share in September of 2011. It’s now worth only $110.81, a stinging 40.37% decline.
That, to many, looks like a great opportunity. It may be too. But it’s a bit too early to tell.
According to the chart below, gold is close to hitting a major a turning point. It’s either going much higher or much lower from here. And we’ll know which way very soon.
Right now, if GLD shows additional weakness, it will likely fall down even more from $110 down to as low as $100 per share.
If and when it gets down there, that’s when the GLD opportunity gets really interesting.
The $100 level for GLD (equivalent to about $1000 for the price of gold) is the support point that really needs to hold if gold is going to turn around.
If it doesn’t, GLD is going to get crushed. Below the $100 level there isn’t any support. And if it breaks below the support at $100, GLD could retreat all the way down to around $72.
Think gold stocks are cheap now? They would get significantly cheaper if gold breaks down that low.
Let me show you why these points of support are important in chart form:
“Descending Wedge” Pattern Emerges in Gold
The chart shows two recent peaks in GLD.
One in 2011 and the other in 2013.
The latter high was followed by a sharp drop and consistently lower lows for GLD.
By charting all that data, I’m able to construct an initial outline (red lines) of what could be the start of what we call a descending wedge pattern.
This pattern would normally lead to a potent bullish move following up from the pattern itself. In other words, GLD would move higher from here if the descending wedge is confirmed.
But it’s not a sure thing yet. With GLD prices still trending lower, it’s still a bit too early tell for sure whether the descending wedge pattern will be completed and gold would be set for a major move higher.
Hence, we are still at a crossroads…
As I said above, the GLD is at turning point.
Should the price of GLD decline further, the pattern would likely become invalidated. If that happens, you don’t want any money in gold because it’s going much lower.
On the other hand, assuming we do have a completion of the descending wedge and a break to the upside, there should be a rally that would be set to eventually test $180 over the next one to three years.
In plain English, active traders should be buyers of GLD on price dips back to the bottom red wedge line and take profits in the upper wedge resistance areas.
For long-term investors looking to bet on a true multi-year renewed bull market in gold, it’s best wait for the big breakout to the upside at the end of the pattern itself.
At that point I’d take you’re highly valued dollars and initiate a sizeable buy. The GLD would likely have plenty of room to climb until it hit’s resistance near $180 per share.
We’ll continue to keep our eyes open and monitor situations just like this one each step of the way.