Having broken down out of its pennant formation by breaching line B, gold is set to test a more significant support around $900. Gold appears to be under pressure to break down through C, as a declining RSI, MACD, STO and resistance line A, suggest that a break down is more likely than a bounce up.
The strength in the US dollar's technical picture adds weight to the argument that gold is due to drop, as the greenback has a decent floor of support levels underneath (A, B & C) that could help continue its rally and therefore push gold prices south.
We are not selling any of our gold positions, but we have cash on the sidelines which has been waiting to be deployed and this dip could provide the opportunity. We would become aggressive buyers if the RSI on gold were to hit 30, over the last few years this has been a solid signal in a bottom on gold prices.
If this dip happened within the next month, we would be cautious about using gold stocks as a way to play the next leg up in gold, since we are rapidly approaching the worst time of the year for them with “sell in may ” and the summer doldrums looming ahead. We may look to acquiring more of the physical metal or options strategies instead, since gold stocks may also be dragged down by a correction in the broader equities markets.
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The next couple of months are going to be quite exciting indeed and should provide some very profitable opportunities.
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