By the way, aren’t you glad I haven’t been trying to trade this monster for a while?  I took the MBT portfolio to cash on December 18 at $1672 gold.  : )

The reason  you shouldn’t buy yet, in brief, is the fact that gold had one nice week just isn’t meaningful after what it’s been through lately.  (Click chart to enlarge.)

In other words:  Any asset, even the stock of a company whose products make your hair fall out, your breath stink, and your skin turn green, is going to rally violently for at least a week or two if it’s been beaten down like gold has been beaten down.

Furthermore, in spite of that one “up” candle on the weekly chart that got hopeful gold bulls itching to buy, the trend is still unmistakably, authoritatively, definitively, DOWN.  (Click chart to enlarge.)

I know what you’re thinking.  ”OK, Mr. Happy, then when is the time to buy back in?”  Well, I’m glad you asked!

I’m currently planning to buy back in a three-step process.  Gold needs to, at minimum, do three things before I will be *fully* invested again.  If gold misbehaves at any step along the way, I will reduce exposure.   (Click chart to enlarge.)

I’m not saying I will buy in equal 33% chunks at each of these three moments.  It could go 20%–30%–50% or something similar.  And I’m not saying I will automatically buy on a weekly close above $1570–I need to make the decision in real time, as should any trader.

I do feel that this strategy strikes a balance between the ultra-conservative plan of not buying anything until gold rallies 23% to $1800, and the reckless plan of going in heavily now when I have no degree of confidence that we won’t re-test or break $1321.

Notice I said going in heavily now is reckless.  $1321 gold, what some say is the bottom, is 9.6% below where we closed the week.  I suppose one could take a small position and put a hard stop down there.  Me, I’m not going to do that.

Consider: My first target, $1570, is only about 7.5% higher than where we are.  Suppose we bought there with a $50 stop at $1520.  That’s a nice, tight stop.  Our losses would be capped at 3.2%.  Plus, $1570′s importance as a long-term support/resistance line is massive.  Personally I’m willing to let someone else make 7.5% and buy with greater confidence (not to mention a far tighter stop).  If you buy right here and gold heads down again, you’re going to take a nearly 10% loss on the trade before gold hits your stop at $1321.

Gold is still in a downtrend, my friends.  Now is not the time to look up and fret about missing gains.  Now more than ever is a time to look down, assume the trend will continue until it doesn’t, and plan how you are going to minimize losses.

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We’ve fallen far enough for me to think a 50% retracement back toward the 2008 low is a distinct possibility.

Note that my favorite long-term moving average, the 75-week, is at $1661.  Now more than $250 higher than gold’s current price!  Wow.  The 200-week moving average (red line) offered no resistance in the Asian markets last night.

So, my current target is $1300.  Note how that level stopped the intermediate decline in January 2011.

Just a quick chart to illustrate something.  Both the 100 week and the 75-week moving averages are converging in on the $1660 area.  The 200 day moving average is almost perfectly flat and stands at $1664.  So $1660, give or take a few dollars, is a key zone gold needs to punch through before I will be willing to get long.

My gut feeling is that this will take a month or more from today, March 11.  Not days or even weeks.  Probably at least another month of waiting.

To save you the math:  $1660 is 5.3% above where gold is now (about $1576).  $1800, an even more important level that gold has to conquer, is 8.4% above $1660.

The most bearish thing about gold right now is that it smashed decisively through the 100-week moving average a couple weeks back and has not yet mounted an assault on it from below.  That level is at $1655, almost $80 above where gold closed the week, $1576.  The MACD continues to plunge like a dive bomber.  Basically, people who are buying now are just taking a stab at picking a bottom.  That’s fine, but I don’t need to nail the bottom to make all the money I want or need from this precious metals bull.  : )

Since the bull began in 2001, the only other time gold broke below its 100 WMA was during the market-wide liquidation panic in the fall of 2008.  (Actually, it dipped below it by a few dollars in late December but it closed comfortably above it by week’s end, so I’m not going to count that.)

For that matter, gold is almost $100 below its 75-week moving average, which is now at the lofty height of $1670.

The 5-week RSI has scarcely been this oversold.

Here’s a closer look at 2003:

Both the 2003 and the 2008 charts (but especially 2008) show that traders can get burned when they buy in thinking “Gold is so oversold it HAS to bounce.”  Well, yes, and no.  2003 only required you to wring your hands through three more weeks.  (This assumes you weren’t stopped out at the ultimate bottom.)

And consider 2008.  If you had bought back into gold in the second week of August, would you really have been holding a month later when gold made a new low?  How about another month later in mid-October when gold made a much deeper new low?  I doubt it.  Most would have sold for a loss.

The COT chart does however show that the commercial traders are cutting their short positions. (Courtesy cotpricecharts.com)

Commercials are always net short because they have to hedge price on the future production of their gold mines.  But the length of the purple bars is shortening, indicating they are paring back short exposure.

My cycle counts are unclear at the moment.  Next week will either be the 18th week or the 28th week of the current intermediate cycle.  I’m pretty sure Monday will be day 8 of the current daily cycle.

At any rate, cycles work best during trending upward moves.  They allow me to anticipate when to take profits and when to go back to fully invested.  But, for all the macro, more prosaic technical reasons I highlighted in the charts above, the cycle count is moot right now.  I am happy to sit on the sidelines until gold really shows us evidence of a pulse.

Let me say a couple more words about attempts at nailing bottoms.  More often than not, traders who try this in sharp downtrends fail.  Then the trader is between a rock and a hard place: Honor his stop and take a loss, or stay the course, “holdin’ and hoping” the whole way.  Me, I would rather honor my stop and live to fight another day.  However, let me repeat:  Gold still looks awful.  It can run quite a bit from here to the upside and still give us ample room to make profits on a return to $1800 and $1900 (which I believe it will make later this year).

I just don’t see the need to try and look like a genius and call a bottom here.  All I want to do is make a lot of money over the long haul with as little risk and as little heartburn as possible.

The tentative plan as of today, March 2, is this:  I will take the MBT Portfolio to 33% invested in CEF and/or SLV and GLD when gold *closes* above its 100-week moving average.  Again, this is $1655 at the moment and it’s rising very slightly.  Interestingly, the 100-week is converging pretty closely with the 75-week (currently $1670) which looks like it wants to turn down.  I may just decide to wait for a close above them both.

I encourage you to sign up for my free email updates and Twitter feed to learn of changes to the plan as they happen.

–Vance

Hello everyone.  To my regular readers, my apologies for not posting anything new in a while.  I’m doing well but another area of my life has demanded loads of attention in recent weeks.

The good news is:  We’ve been right so all we have to do is “sit tight.”

Subjectively, I sort of assumed we’d be back in some precious metals positions by now.  Well, as I’ve learned time and again:  The market can do whatever it wants, whenever it wants, and that includes staying irrational longer than you expected.

But, fear not.  I’m not going anywhere, I am keeping an eye on this thing, and when the time comes to take new action, I’ll let you know if you’re following me.  By the way, now would be a great time to join my free email list and/or Twitter feed.  I only say something when I have something substantial to say.

–Vance

I have decided I will buy in today if gold closes above the 50 DMA of its February /GC contract–currently the 50 DMA is $1697.20.

I will use 4:00 New York time as our “closing” time, although I realize the futures session closes later.  4:00 is when the GLD market closes.  Good enough.  If you can’t get charts of futures, just use GLD.

In the event I buy, I will buy a 30% position in GLD and a 30% position in SLV for the MBT Portfolio.

So far it looks like the 50 DMA may repel this advance for the time being.   Would not be surprising at all to see gold decline for a couple sessions after bumping its head on the 50 DMA.  In the event that that happens, I would give gold the time it needs to advance above the 50 DMA and close there before buying.