A Short-Term Strategy for Trading Gold

From a reader:

“I know you’re bullish on gold for the long term, but about right now?”

The reader was probably referencing my call for gold to reach $2500. That’s based on gold’s monthly chart, shown here. That article was written on June 18th, prior to gold’s big breakout. At the time, gold was trading around $1720.

The call was based on gold’s monthly chart, due to a pattern that formed over an eight-year period. Here’s the rounded bottom pattern after the breakout:

gold monthly
Gold monthly chart by Tradestation. 

Based on that chart, gold is well on its way to my $2500 long-term target. What about the short-term prognosis for gold? Let’s go to the daily chart to find out. 

gold daily
Gold daily chart by Tradestation

Post-breakout, gold rallied from approximately $1800 (point A) to $2050 (point B), for a gain of $250. Then gold pulled back to point C. The low point of that area is approximately $1870. 

Add $250 from the first leg to the low point of $1870, and gold’s target price, represented by point D, is $2120. 

This is similar to the technique we recently used to create our target price for silver. Click here to see that chart and article. 

ABCD is an old-school method for creating target prices, but it’s worked surprisingly well recently. The recent pullback in the U.S. Dollar Index was predicted using this technique:

U.S. Dollar Index chart by TradeStation

Is there a stock, commodity, or currency that you’d like to see analyzed? Feel free to leave a message in the comments section if you have a request.

Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.

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