Gold’s Wilde Ride: Is The Correction Over? When Is A Good Time To Buy?

To say that gold has been volatile this year would be a massive understatement. Since bottoming at $1,309.10 in January gold rose 46.9% to an all-time high of 1923.70 in September, before falling 20% to $1,535. It then rose 17.5% to $1,804.40 in early November, before falling 13% to a low of $1,562.50 on 15 December, which has so far held.

Chart of gold showing its wild swings during 2011

Chart courtesy of Stockcharts.com

For those that are long the yellow metal because of its compelling fundamentals, there are two obvious questions: Is the correction over? and When is a good time to buy?

What The Indicators Can Tell Us

This 11 year gold bull market has seen plenty of corrections and during the biggest ones the 144 stochastic tends to dip below 20 (indicating extreme oversold conditions) before turning back up. As the chart below show the 144 stochastic hasn’t yet dipped below 20. A good time to buy would be when this indicator moves below 20 and starts to curl back up.

Another indicator worth watching is the 70 period CCI or Commodity Channel Index which flashes a buy signal when it passes back above 100, which it is yet to do.

Chart of gold showing the Slow Stochastic & CCI indicators

Chart courtesy of Stockcharts.com

Another thing I follow is a mechanical trading system based on a Renko chart. It’s a system that has been flagging buy and sell signals very accurately, and it too is yet to flag a buy signal, indicating that this latest correction in gold may not be over.

Chart of gold showing the mechanical trading system I follow


Chart courtesy of Stockcharts.com

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