Hold Off on Entering the Gold Market, Look for Sell-Off as an Entry Point

Includes: GLD
by: Brian Rezny

The question: is it time to enter the gold market? The answer: hold on. I absolutely like gold long-term, but it’s looking a bit frothy right now, so I wouldn’t add to a position today. Gold hit a new high, and ended last week up 1.3% ... its fifth consecutive weekly gain. And what’s more: the metal is headed for its 11th annual gain – which would mean the longest winning streak since 1920.

Gold funds have been inflow leaders. Last week, SPDR Gold Trust Shares (NYSEARCA:GLD) led with inflows of 13,700,000 shares, a 3.3% increase. That’s after the fund led the previous week, with $1.1 billion in inflows. It’s not only individual investors piling into the gold market, last week the central bank of South Korea confirmed its first purchase of gold since the Asian financial crisis of 1997 (the Bank of Korea bought 25 metric tons of gold in June and July).

That said, the gold trade has been getting a little crowded lately. Looking at SPDR Gold Trust Shares, the fund is looking overextended in the past two weeks. I would not be surprised at all to see a correction, and I would definitely look at a sell-off as an entry point.

Click to enlarge
(Click to enlarge) Source: stockcharts.com

The bottom line: technically, gold is still well below the 1980 inflation-adjusted peak of $2,287 ... gold has room to run, and I expect it will.

Disclosure: I am long GLD.