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Taking Profits in Gold


The technical picture for gold is telling me that its time to take some profits. Its been a great push forward, but we are severely overbought and ready for a pull back. We are booking profits on 20% of our holdings of the GLD exchange traded fund today, and will be examining other positions in the miners in the next few days.

Readers of the blog know that I never like to be on the same side of the boat as everyone else. You are always the first to drown when the boat tips over in that situation. Following this analogy, everyone has been buying gold in recent weeks, and we are now at one of the highest overbought situations I’ve ever seen.

Looking at the chart above, I’ve annotated some things that led me to this decision:

1. the blue arrow near the top points to the relative strength index showing a reading that has moved above 90 – my experience with this indicator is that whenever it gets so overbought, we have a correction in either price or time (either the price falls or it plateaus for a significant period of time) – this reading is supported by the overbought reading in the Stochastics graph below (see the orange circle above 80 – both indicators show a correction is coming (either in time or price – you just don’t know until you are into it)

2. the blue circle between the moving averages on the price graph is where I anticipate the price to fall to and we will reassess the situation – we’ll either buy some shares at that point (either some or all of what we sell today – that will depend on what the market shows me at that point) or we will look to diversify into either a different gold commodity fund or the miners or maybe silver, platinum or palladium – we invest what we see not a preconceived notion of what should be

3. the upsloping green lines on the OBV and the Accum/Distrib indicators below show me that the pervasive trend remains up so any correction will be contained by interested buyers that want to own gold but missed the earlier move higher and have been waiting for a buy-in point

So that is our strategy. For the long term, gold will be higher as paper money loses value due to our mounting national debt. We will definitely be a buyer of gold or one of its higher beta derivatives (silver, platinum, and palladium) once the current euphoria subsides and prices come in a bit.

Right now, let’s book some gains and wait for the prices to come back to us.