Gold is following the script nicely

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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.

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

Here is the chart as of this morning:

Gold spread betting chart

(Click on the chart for a larger version)

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.

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!)

Gold spread betting chart

(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.

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.

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?).

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?

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