Buying And Selling Gold At The Right Time? Has Gold Topped Part 1
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Is GOLD Topping Part 1
It’s no secret gold has become one of the most consistently profitable trades of the past decade, but is this run is finally coming to an end? From a technical standpoint it looks like the run could be over.
One could sit and cycle through hundreds of opinions on why gold is a solid investment, why gold is fundamentally undervalued or even opinions that claim gold is the only safe haven to invest in during these globally shaky times. In the end these all boil down to nothing more than opinions, and whether they are right or wrong, fundamental opinions should never be used to time a trade.
When we hear of traders/investors taking positions based on some macroeconomic strategy they have recently read about it reminds us of 2006 when we were talking to a member who was disheartened over the fact they had just nearly blown up their account. The reason being they had just finished reading a book on how China and India would gobble up resources as part of their economies' massive growth and they too had decided to jump in with both feet during mid May of 2006 to take advantage of this theme. Sure this trader was correct in his theory but his timing of when to take advantage couldn’t have been more wrong. May of 2006 was actually the top after a huge commodity driven rally and those who entered into commodity based trades at that point got crushed.
The BRIC (Brazil, Russia, India, China) nations have actually provided us with some massive moves over the past 10 years but at that point in time the move had already happened. Those who had read that same book back in May of 2005 would have enjoyed a massive commodity driven rally and would have been taking profits during the May 2006 blow off top. Instead this poor guy who was totally convinced and correct in thinking that China and other BRIC nations would gobble up resources bought his commodity driven stocks or ETFs just in time to catch the implosion of a bubble popping.
We can relate today’s moves in gold to what happened back in 2005-2006 and see if we are facing another similar or worse situation.
Let’s take a look at GLD
Back in May of 2005 GLD was trading around $42. By the end of 2005, GLD was already trading as high as $53. By mid May of 2006, a mere 6 months later, GLD had soared to $72 but by mid June GLD had once again fallen back down to $55 per share.
Those who caught the run and bought GLD in May 2005 were able to chalk up gains as high as 71% by May of 2006. For those who saw this huge run, caught onto the gold theme too late and bought GLD in May of 2006 they were down as much as 23% within the month. This short term bubble popped so fast most short term traders or longer term investors sold at massive losses especially if trading on margin. It wasn’t until 18 months later that prices once again reached that May 2006 level.
Our point of this article isn’t to discredit fundamental analysis or macroeconomic strategies but rather to force traders and investors to realize that a story or fundamental picture can remain the same for years but timing is everything. This is why we never take a position unless we see confirmation from our technical analysis. If you have sound fundamental analysis just think what your returns will look like using the charts to guide you on your entries and exits. Catching the beginning of a move and avoiding 20-40% drawdowns make massive differences in your overall portfolio performance.
In our upcoming pieces we will be giving readers more insights into how to identify when a stock or ETF is topping or bottoming.
Please email at firstname.lastname@example.org with any questions.
About The Author:
Brett Marsh is Chief Market Technician of www.GlobalChartAnalysis.com where he provides market commentary and daily chart analysis. He is also chief editor of the “Better Stock Entries” stock service which provides traders with explosive stock ideas for the short term.
Brett graduated from the University of Southern California with a degree in economics. He started his trading career over 17 years ago as a Financial Consultant for UBS before given the opportunity to become a NASDAQ market maker. He then helped start and run several trade desks, making markets in 100?s of stocks. Brett was then given the opportunity to work with Larry Connors and later William O’Neil, 2 best selling investing authors and market wizards. This allowed Brett to learn both Quant modeling and other technical/fundamentally based trading methodologies used by some of the top portfolio managers in the world. Using this unique market insight, Brett has educated and trained thousands of individuals and portfolio managers. He has helped them improve their trading results by using high probability trading techniques which focus on short term, aggressive moves and proper trade management.
We hold no positions mentioned in this article.