Gold is set for a bounce. The momentum indicators are recovering from strongly oversold readings. The gold price chart shown below reveals a rising RSI momentum indicator in the upper pane of the chart.
It is quite likely that the price of gold will move towards its 200 day moving average (MA). As seen on the chart above, there is quite some upside until the 200 day MA is reached.
Another indicator which points to a bounce is the COMEX positions of futures traders. As seen on the next chart, the commercial traders are holding the lowest net short positions in years. In fact, it is not visible on the chart, but we went back till the start of the COT reports, and observed that this is the lowest short position of commercial traders in history. As we have said before, extreme net short positions of commercial traders indicate that a price rally is in the making.
How to play the coming rally in gold? Very simple, through the miners. There is an explosive potential in gold miners, both to the downside (as we have witnessed lately) as to the upside (which we will see probably soon).
One can select a couple of quality miners, take a position, sell the invested amount once 25% or 50% profits are reached, and keep the “free” shares. That is a simply trick to accumulate free shares over time, riskless, by playing oversold bounces.
Timing the entry and exit is critical, therefore one needs to look at technicals. But today’s situation points to a very high risk/reward.