Gold: Time to "Fish or Cut Bait"

05/04/2017 2:45 am EST

Focus: COMMODITIES

Jon Strebler

Editor, Dow Theory Letters

Gold has such huge potential given the geopolitical environment, it did indeed stall out at the overbought zone just below $1300 as we suggested in April, notes Jon Strebler, technical expert and editor of Strebler's Perspectives at Dow Theory Letters.

It has dropped about $40 since, and is now back to a rather decisive area. Trading around $1255, gold is in the general area of its February high (the maroon circle) — a high that went on to become an area of resistance but is now an area of support.

More importantly though, gold is back down to its 200-day moving average, and closing in on the trendline that has defined its whole mini-bull market this year. 

chart

As a result, should gold drop much more, it will start deconstructing (another trendy word these days) the bulls’ case for our favorite yellow metal. On the other hand, this is a great, low-risk point to buy gold for those so inclined.

You buy gold at $1255; if it drops $20, you’ve lost the bet and sell for a modest loss. But if it holds in here, you’ve got a substantial ($40? $100? $500?) profit possibility. The technical term for this situation is that gold needs to “fish or cut bait.”  

My guess is that gold fails, and heads lower. But when you put Donald Trump, Kim Jong Il, Vlad Putin and all the rest together, mix in some EU fears, the possibility of US deficits soaring off the charts, rising levels of animosity of various types among various groups in the US and around the world and – well, I’m not selling any of my gold either!

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