Over the past 9 months or so I’ve been trading in and out of gold using the leveraged double long ETN (DGP), adding positions on breakouts (or oversold conditions) and taking profits on overbought conditions. In my opinion, the time is now to begin adding gold again. Yeah I’m a bit concerned about all the talk about getting into gold (haha.. what timing! a goldline commercial just appeared on the tube), so it is a bit crowded and may need to consolidate some more, but I think the odds are very good for a run to $1000/oz and beyond in the coming months.
I first began trading DGP last summer and on June 16th, 2008 I told my premium members:
“My analysis is indicating that gold and silver is offering an initial entry point today by breaking out of downtrends and subsequently, bullish wedge formations. This could be the beginning of another run in gold and silver over the next few months. Entry at 21.16.”
::: >> (oh no, another gold commercial!)
One month later on July 15th, I locked in the 17% profit at 25.22 as DGP became very overbought. (see chart below)
Four months later it was time to put the gold trade back on at 13.59. This time the trade was put on due to oversold conditions as DGP dropped from 22 to 12 in just one month. I added a small position with the expectation that money would begin flowing back into gold… essentially I was bargain hunting which is something I don’t do very often. I prefer the breakout/momentum plays but every so often extreme oversold conditions may offer a compelling trade. This particular trade was sold about 6 weeks later at 18 after a 2nd move into overbought conditions. Note the pull back to the 50 day moving average (in blue) a couple weeks later to the area around 15. This would be have been an ideal place to re-enter the trade but I hopped on the gold train a bit late and initiated another trade at 18.95 on January 23rd following another breakout move above the December highs. Gold continued to launch higher throughout February, testing resistance of the 1000/oz mark again (it last did so one year ago) and was way overbought after moving from 15 to over 23 in one month. That provided the exit signal for me once again and exited for more gold profit on Feb 17th at 21.92
In the chart of Gold Double Long (ETN) below are the entries and exits over the past 9 months
I know, you might be thinking who cares about past trades. Show me the trade right now! I’m getting there.. just remember that patterns repeat over and over so pay attention to consolidation breakouts as well as overbought and oversold conditions and not only will you do well trading gold but you’ll do well trading any stock or ETF.
Gold needed a rest and it pulled back to the next logical level of support where the upward trend line, the 50 day moving average and the 200 day moving average converge. The area around 18.50 – 20 is a BIG area of support and I have been getting back into DGP around these levels. We’re a bit overbought up here after gold soared following the additional Fed money moves so may need to spend more time sideways, but it created a breakout from the consolidation that began in February with the pull back over the past 3 days offering a nice place to scale back into gold. It’s quite possible gold is setting up for a move to break through and hold above the $1000/oz barrier and if that happens we could enter a mania phase with BIG time profits.