A couple of days ago I sent you an update for Gold that shows that we had a major break out in the price of Gold this month.
The chart below is a weekly chart of Gold with a trend line drawn from the cycle high of Gold from September 2012 to the current date of October 2015.
On October 10th, 2015 (Arrow), we had a break of the down trend line for Gold. This represents a paradigm shift in the direction of Gold and we should expect to see a continued move up into a bull market from this point forward.
If you got into the precious metal positions that I recommended a couple of weeks ago, you should be feeling pretty good right about now, but it’s still very early in this cycle and not too late to get in. I would enter into some late 2016 Call Options or even early 2017 Calls and choose out of the money strikes. When you buy out of the money, you are taking on a slightly higher risk, but no more than the cost of the option and your potential gain increases considerably.
Ever since then, I’ve gotten some questions about how and where to place stops, now that Gold is showing some ‘green’ in your positions. On Sunday I wrote the following….
“This next week should provide some serious upside in the PM markets, so Monday would be a good day to place a trade, especially with the downside retrace we had on Friday. An upswing is coming soon, maybe as early as Monday.”
Well Monday saw Gold continue its retrace down form overbought conditions, however, as expected Tuesdaywe saw Gold change direction and start its move north again. I hope you took the opportunity on Monday or early today to enter into some positions if you’re not already in.
Several things have occurred in the Gold market to indicate that we are entering into a bull market. The first being the cross of the downtrend line from the peak of 2012, as shown in the chart above.
That’s a major indicator, however, look at the chart below and notice the 200 day moving average (DMA). The 200 DMA is a dividing line that usually signifies the difference between a bull and a bear market. If price moves above the 200 DMA, it’s considered a bull market signal, and inversely, a bear market signal.
As you can see (red circle), the price has clearly crossed the 200 DMA, but it retested that line on Monday and today moved back up again. If the price can hold above the 200 DMA, then you can expect Gold to continue in its upward momentum for the next few weeks.
Also, look at the dollar chart below. This is the third bullish indicator for Gold. Remember in last week’s report, I spoke about the inverse relationship Gold has to the Dollar. As the Dollar moves down, Gold moves up.
You may also remember in prior reports the definition of the ‘Death Cross’, if not, I’ll remind you. A ‘Death Cross’ is when the 50 DMA crosses over the 200 DMA, as it has in the Dollar chart below (See circle). This indicates that the Dollar has more room to go to the downside, which is very bullish for Gold.
All things considered, I’d say things are looking up for Gold and Gold stocks.
As far as placing a stop order, wait until your positions are at least 30% above your entry price and then either place a hard stop at or slightly above your entry price or place a trailing stop that falls close to the same spot, so it follows the bull up over the next several weeks.
Remember that your stop price is based on the ‘Bid’ price, not the ‘Ask’ price. So your trailing stop needs to be at least 30% lower than the Bid price or you might get stopped out too early.