How to Play the Gold Drop

Gold has dropped like a big, yellow rock for five straight days.

The trouble started when $1,650 started looking vulnerable earlier in the month. The $1,650 area was crucial short-term support. After all, gold had been on the skids since its slow trickle down from $1,800 back in October.

After steadily trending lower, we finally got the big flush yesterday. The bottom completely fell out and gold dropped from $1,608 to a low of $1,554 in less than 24 hours. Early this morning, it has repaired some of the damage. As I type, the spot price is in the neighborhood of $1,570.

So let’s review:

Last week, I warned you that gold was set to drop a $100 to $1,550– check.

I also told you $1,550 could become a stellar buying opportunity.

But it isn’t. Not yet, anyway…

Forget your fundamental arguments. Gold is at the mercy of technicals right now. Sellers want to sell and you can’t stop them from doing so.

And don’t get caught up in any arguments about gold being oversold. Don’t get me wrong– it is. Gold is more oversold now than it has been in years. But that’s never a great reason to buy something. Gold could continue to drop and remain painfully oversold for weeks. Thinking that it couldn’t possibly go any lower is just plain reckless…

There’s absolutely no reason to rush into a gold trade right now. If it begins to show signs that $1,550 really is going to be the price floor, you will have plenty of opportunities to pick it up on the cheap.

Just don’t get caught buying early.

Gold is a falling knife– it could cut deep. Let this rush for the exits pan out before you make any plans to buy.

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Greg Guenthner

Greg Guenthner, CMT, is the editor of The Rude Awakening Pro, The Seven Figure Formula and Seven Figure Signals. Over the past decade, Greg has helped build the small-cap and technical research teams. His analysis has appeared in Forbes, Yahoo Finance, Bankrate, and countless other publications. Greg is a member of the CMT Association and holds...

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