Gold is following the script nicely

John C Burford has been keeping an eye on gold for a while now, looking for signs of a top in the market. Now gold's sell off has begun, and it is following his script nicely.

Don't forget to look out for the first of my video tutorials tomorrow!

Because we have seen a satisfying $180 sliced off gold in just two days, I thought it timely to send you an update of my trading as of early Thursday morning.

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Yesterday, I set out my reasons for shorting gold close to the top at $1,900.

Here is the chart as of this morning:

MWT-11-08-25-1

(Click on the chart for a larger version)

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The tramlines are drawn from the hourly chart. With the break of the central tramline yesterday, I had a clear target to go for.

Of course, that was the lower tramline, drawn equidistant from the central one in the $1,730 area.

And that target was hit overnight. A great place to take short-term profits of around 1,600 pips (or £1,600 per £1 spread bet).

Timing is everything when placing trades

Yesterday, I told you that there were glittering prizes possible from trading from the short side of gold!

But, as we all know, timing is almost everything. If I was a few hours early, I would have been hurt badly.

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I have had gold on my radar for many weeks, and made a few false starts. But now, all that has been worth the wait.

Now, gazing at the chart in close-up, I see there is a potential positive momentum divergence, which indicates to me that a sharp rally is certainly possible if not probable.

Recall the example of the Dow, where we saw a similar positive momentum divergence, which lead to a good rally (still in progress!)

MWT-11-08-25-2

(Click on the chart for a larger version)

Also, I have drawn some fairly convincing tramlines around the action of the past few hours.

Because this sudden $180 swoon has put the cat amongst the pigeons (the gold bulls), I expect rallies to be somewhat limited.

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Gold is only going one way much much lower

But there are plenty of gold bulls who are wondering what hit them and what to do next abandon ship, or stick with it?

The majority of the comments I am reading advise sticking with it and buying on dips.

To me, that means only one thing we are going much, much lower. It only proves that once a core belief sets in (gold up), very few read the signs of a turn-around.

Of course, that's OK if you are buying bars or coins for cash for a very long-term holding. But in spread betting, we are dealing with a leveraged product, where a small price movement is often translated into a huge variation in your trading account.

Spread betters cannot stomach large losses. Adding to losing positions usually ends in tears. I never do it.

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Please don't be tempted I want to see you survive and flourish in these monster moves we are seeing this summer.

OK, the Elliott wave pattern I tentatively suggested yesterday has been blown out of the water.

I have indicated my best current guess of the count on the chart. It seems we are in a wave 3, and the move down yesterday has all the hallmarks of a typical third wave.

If this third wave is ending here, I expect a rally in a fourth wave, where I shall be lurking to short again.

Naturally, I shall be applying my Fibonacci levels when I am confident the low is in.

And if gold decides to follow my script, we shall see a fifth wave to a new low. That is when we shall see a more substantial rally (timed with a big collapse in the Dow, perhaps?).

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The alternative is, of course, a major continuation of the decline, which I consider slightly less likely. But with the whole world long gold, I certainly would not rule it out.

I promised you an exciting summer, didn't I?

Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here .

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