This article was originally by posted by Michael on Feb 8th, 2016 – Ed.
Gold got past the first important resistance at $1180 today and finished above $1190. That’s a good sign and arguably more importantly it moved $40 plus on a day when the US dollar was stable against major currencies. In other words it wasn’t a reaction to US dollar weakness. My guess is that some safe haven money has been moving into gold.
So what does it mean? I think it’s way too early to say a big bull market has begun and I won’t be surprised if there is some profit taking by speculators and hedge funds after such an abrupt move. But getting above the stubborn resistance in the $1180 range does significantly increase the probability of a move to the next resistance level a $100 higher.
Investors who do not already have positions can put a toe in the water. How many toes depends on your risk tolerance. There’s no guarantees here.
You can initiate a position by either buying the ETF (GLD) or by buying some senior gold producers that have been badly beaten up. Analysts’ favourites include Agnico Eagle, Goldcorp and Silver Wheaton.
A conservative way to play an up-move in gold is to sell puts on either the ETF or a senior producer. If gold moves strongly you won’t get the full benefit of the price appreciation but selling puts also protects you on the downside (with the premium you take in) if the up-move peters out.
One Big Caveat
My experience is that way too many gold investors have an emotional relationship with gold. That’s a good way to lose money, as many have experienced in the last three plus years.
If the break-out fails then a significant down-move could develop in conjunction with an up-move in the US dollar. In other words, there is risk in this market. That’s why I’ll be watching the price action very closely this week to see if gold can maintain it’s break-out above $1180.
Marty Armstrong’s model requires a weekly close aboe $1208 to signify more strength to come – otherwise the probability of a false move are dramatically increased.
No one said this is easy. Personally I am very cautious – Stay tuned.