Gold Is Nearing the Breaking Point

By Jeff Clark

It has been one month since we last looked at gold and wondered if we would get a chance to buy it on sale in July.

So far, that pullback hasn’t happened. In fact, gold is a few bucks more expensive than it was back then. It’s hardly trading at the bargain-basement levels I was hoping we’d see by now.

But there’s still hope. Gold is trading in a consolidating-triangle pattern. And one way or another, it’s setting up to make a major move…

For the past couple months, the yellow metal has been stuck in a trading range between about $1,550 and $1,625. But that range has been tightening, and gold has been storing up energy for another big move. That move could happen as early as next week.

Take a look at this chart of gold…

Gold is approaching the apex of its triangle pattern. That’s the breaking point – where the metal either breaks out to the upside of the pattern or breaks down. Either way, there’s the potential for a $140 move in either direction. And based on the chart, it could happen in the next couple weeks.

Frankly, I’d love to see the metal break down here and give us a chance to buy it near $1,450 per ounce or lower. But I’m starting to doubt we’ll get that lucky.

With all the recent talk about a global recession, deflationary pressures, and Bernanke’s testimony to Congress last week that he does not want a third round of quantitative easing… gold has had plenty of reasons to drop in price. But it’s been holding steady above the $1,550 support zone. Maybe we won’t get a chance to buy it at as huge a discount as I’d hoped.

There is a big move coming, though, and here’s how I plan to trade it…

If gold breaks out to the downside of the triangle and loses support at $1,550, I’ll look to buy the metal somewhere around $1,450 or lower. That will be the best gold-buying opportunity we’ve seen in years.

On the other hand, if gold breaks out to the upside and rallies above last month’s high of $1,625, forget about buying it on sale. Just buy it. Gold will have entered “rally mode,” and will likely challenge its February high above $1,775.

Either way this plays out, there’s big opportunity ahead in gold.

Best regards and good trading,

Jeff Clark