Is Gold Rolling Over Again?

I published the chart with the two CNBC headlines in the January 19 Profit Radar Report. It just illustrates nicely how the change of price affects sentiment and vice versa. A risk trend followers hate and contrarian investors love.

We bought gold at 1,140 (as per the November 5 Profit Radar Report recommendation) when no one wanted to own it.

Now, it’s more fashionable to own the yellow metal again.

This alone is reason to be cautious, but it’s not the only one.

The gold seasonality chart below, featured in the January 25 Profit Radar Report, shows that seasonality soured around January 22.

Although it’s a couple of days old, the assessment published in the January 27 Profit Radar Report is still fully applicable.

The easy money in the gold trade has been made. More attention and mental stamina is required now. Sunday’s PRR showed seasonality is turning bearish. Commercial traders (‘smart money’) have further reduced exposure.

The chart shows that current trade is important from an Elliot Wave perspective. Gold appears to have completed a 3 wave rally. There are now two options:

Gold will trace out a wave 4 correction followed by wave 5 higher. Target for a wave 5 high is around 1,xxx (reserved for subscribers of the Profit Radar Report).

Longer-term, a complete 5-wave rally will be followed by a corrective decline and at least one more rally leg.

Shorter-term, a wave 4 correction could become a pain to manage. Waves 4 tend to seesaw over support/resistance levels, therefore using the trend channel support at 1,275 as stop loss could kick us out at the wrong time.

A 3-wave rally is indicative of a correction and would translate into a relapse to new lows. This option is unlikely, but theoretically possible.

We can either take our profits and run or commit to endure a potentially painful correction in exchange for further gains. I like to keep things simple and recommend taking profits. Lets cash in gold around 1,295 and GLD around 124.20 for a nice 13.5% gain.”

Gold has since dropped to 1,255. The SPDR Gold Shares (NYSEArca: GLD, iShares Gold Trust (NYSEArca: IAU) and Market Vectors Gold Minders ETF (NYSEArca: GDX) also peeled away from their recovery highs. I still think gold, GLD and IAU will see higher highs, but it will take some patience to get there.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59%.

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