It's been over one and a half month since the price of gold crashed through the support line in the neighborhood of $1550. That freefall was very significant for gold investors, since gold left its eighteen month long trading range between $1550 and $1800. The failure to sustain the long-term trend up resulted in a selloff we witnessed right in the middle of April. Since then the price of gold has been oscillating nervously, creating a new range with the support at $1300-1350. Gold bears are betting the trend will continue lower, and they contend that these oscillations are only a running correction in a new downtrend. On the other hand, bulls hope for the end of a multi-month correction from the historical peak in September of 2011. At this moment calling the bottom might be considered "catching the falling knife", that's what wise books say... Clearly, the support zone of $1300-1350 mentioned earlier is very important in the short term and should be considered a stop-loss level for new bulls here, in case they are wrong. If we look higher, then there is a resistance line (which had previously been support) at $1550. From the perspective of the current market price, which is just below $1400, it is hard to see a quick way back into the former trading range. Or maybe the gold market has just entered a new trading range and we will not see prices other than between $1300-1550 for some time? It took the bull market quite a few months during 2010 and 2011 to break up through $1300-1400 so now this level may act as support, limiting further moves down.
It is interesting how confused the gold market is right now. Investors were used to the above-mentioned 250-dollar trading range. Bulls hoped for a continuation of the long-term trend and a break up through the potential psychological barrier of $2000. At the same time bears were hoping for the long-term trend to reverse. There were also timers who used both the upside and downside potential, buying at lows and selling at highs of the range. In the middle of April the bears won the battle, pushing the price of gold down violently. Here comes the confusion - some bears are cashing these quick profits, becoming neutral or even optimistic, and some bulls are closing long-term positions, fearing this might be the end of the entire multi-year bull market. The result is this still-running April-June flat correction. Will it become the new trading range for some time? Short-term traders, timers, could use a strategy of buying in the zone of $1300-1350 and selling around $1500-1550, with the right stops in. As far as a long-term approach is concerned - it is not that easy. Bears who bet above $1550 may be comfortable, but that support zone around $1300 means temptation for profit taking. On the other side, buying here is quite risky. After all, this looks just like a correction before another leg down, into the seasonal summertime weakness of precious metals.
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