The Recent Move in Gold Looks Like a Trap

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 |  Includes: GLD, SLV
by: Jeff Pierce

While it’s easy to think that gold and silver will continue to outperform all other asset classes, especially if this 2 day drop in the markets gathers steam, that may not be the case and here’s why:

  • Negative divergence on RSI as it has made lower highs and lows since it peaked in December
  • Failure of this commodity to set a new high as Silver blasts through old resistance levels
  • ADX is pointing down, indicating a weak trend, while the +DI is also making lower lows

I think this recent attempt to make new highs is a fake out and it will fail. When/if it does make new highs, the media will be all over it. This will cause the lemmings to jump in, but when it reverses there will be a mad rush to exit and we’ll get a decent correction. I would be very careful trading these commodities as I don’t think they have had a proper correction that will allow them to move significantly higher.

Here is a short video from MarketClub that has an interesting take on how to play potential weakness in Gold (click to enlarge):

Disclosure: No positions