Let the Gold Pullback Run Its Course!
Last week I delivered the good news about gold. The long-term fundamentals remain rock solid for imminent higher gold prices, perhaps as high as $25,000, according to one industry insider’s forecast.
But this week, I must deliver the bad news about gold, which is that a short-term correction continues to unfold for precious metals and mining stocks.
So today let’s set aside the bullish fundamentals and take a closer look at the technical condition of the market, which isn’t as positive.
First: As you can see in the chart below, gold just broke through its 50-day moving average to the downside, which is the first time it’s been below this key technical level since May 2019.
Gold also broke below the key price support at $1,500 an ounce.
Second: You can also see that gold’s price momentum — the lower panel in the chart above — turned negative in September for the first time since May.
All things considered, this is a red flag telling me that the correction in gold I forewarned you about is now unfolding as expected.
How low can gold go?
Look back at the chart above. Notice the two red parallel lines I’ve drawn? This represents the next support zone for gold, which lies in the neighborhood of $1,400–1,450 an ounce.
Gold should at least test this level, but I expect that support will hold as buyers step in.
Mind you, this is certainly nothing to panic over. In fact, it represents a drop of only about 5% from here — not a big deal. But it does mean that you’ll have to be patient and wait for a better buying opportunity at more attractive prices.
Another factor gold has going against it right now is seasonality…
Gold follows a predictable rhythm throughout the year, and as you can see in the chart above, it’s about to enter a seasonally soft period in October and early November.
The good news is that one of gold’s strongest seasonal periods of the year lies just ahead, from November–February, during which time gold has typically rallied by 3% or more. And last year the rally was even bigger, with gold up more than 10% over this period.
Bottom line: Much higher prices for gold are just around the corner, right after the current pullback runs its course.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch