Gold May Be Overbought - Considering Trailing Stops

Many writers are bad mouthing gold at present. The deflation vs inflation debate continues. Folks, there is some price inflation in most of the products we presently buy and use. However, it is muted from time to time by lower prices at the pumps. Harking back to the true definition of inflation, we remember that inflation is "An unwarranted expansion of the amount of unbacked currency in circulation." This is the historical definition and one that I stick with in Biblical Austrian Economics.

Back to gold: Let's look at the graph for the precious metal, below. The RSI (Top Section red circle) turned upward today as it has in most of the past times as the price of gold continued upward. The MACD (Lower Section red circle) made a downward bend and then is showing a slight upward bend. That hesitation is cause for a bit of concern.

Looking at the candlestick graph in the center section, gold must best 1030 (upper red line) to move upward. It tried when it briefly intraday went above 1020, but has failed so far. A correction to recent resistance at about 980 is a potential correction level (lower red line).

Looking back to around the first of September, we can see that gold has sprinted from around 950 to 1016.70 (NOW). That is a substantial rise in a short period of time. We could be due for a correction. The trading thus far tonight is indicated by the small purple rectangle to the right of the candlestick for today's trading (closed at 3 pm this afternoon).

So, what is so important that this special late evening posting was necessary. I am considering some trailing stops on some of my mining stocks. I do not want to put trailing stops on all, because the stops could be hit on sudden short drops in price followed by continuing upward moves. Therefore, it is well to use stops of at least 10% to allow for some drops. These could well be necessary in anticipation of a potential big correction. I wanted to alert each of you to consider your risk tolerance and if trailing stops would let you sleep well at night, have at it. Protect yourself.

When and if I decide to put in stops, I will let you know as soon as possible. Also, I added a few thousand more shares of BULM today. At that time, I did notify you that planned to do it, and then told you that I did it. My offers were hit so suddenly, that I had almost no time to let you know. However, I did try via email.

By the way, most brokers will not allow Trailing Stops on pink sheet stocks. So you will have to watch them yourselves.

I will try to up date the blog earlier tomorrow, particularly if the situation recommends action.

Good night and have pleasant dreams. You are likely to read this early in the morning.

Best to each, Doug