Jim Wyckoff's Gold Survival Guide
(Kitco News) - Contrary opinion in the trading business is defined as going (trading) against the popular or most widely held opinions in the marketplace. This notion of "going against the grain" of popular market opinion is difficult to undertake, especially when there is a steady drumbeat of fundamental information that seems to corroborate the popular opinion. In this case, the metals markets have been hit hard with bearish fundamental and technical news.
To help you understand why contrarian thinking is used successfully by some traders, consider these questions: When is a market most bullish? When is a market most bearish? The answers are: A market is most bullish when the highest daily high on the chart is scored--it's downhill for prices from there. A market is most bearish when the lowest low is reached on the chart, and then the market turns up.
It's no wonder many novice traders lose their assets quickly in the futures and FOREX trading arenas. Traders are most bullish at market tops and most bearish at market bottoms!
Popular opinion is many times not the right opinion when it comes to market direction.
Contrarian trading is not for everyone, but some traders are successful in employing it.
One more thing: History will show that gold priced just below $1,200 is a long-term, value-buying opportunity. Raw commodity markets are very cyclical. The PMs are in a down cycle right now, which will be followed by an up-cycle. I strongly suspect that in the coming few years, or sooner, gold will reach new record highs.
Sage market maxim: Markets are the most bearish at the very bottom in price. And then prices start to work their way higher.
--If price action in gold and silver today and Friday can see stabilization or even slight gains--given Thursday's spike lows--then such would be a technical clue that the bears are finally exhausted and that at least near-term market bottoms are close at hand.
--We are heading into what is historically some of the roughest stretches (September and October) for global equity markets. After the U.S. Labor Day holiday, look for more active trading that could produce more volatility and be supportive for gold and silver markets.
--While there are presently worries about a secondary-currency-market crisis, or "contagion," the safe-haven gold and silver markets have so far seen little to no safe-haven demand. However, a significant escalation of anxiety in the world marketplace will benefit the gold and silver markets.
--While the U.S. dollar index requires daily monitoring because it's been the major bearish element pushing metals prices down, also keep an eye on crude oil prices. Nymex crude oil prices hit a seven-week low Thursday, and if oil price continue to trend lower it will be tougher for the precious metals and other raw commodity markets to sustain rallies. Crude oil is arguably the leader of the raw commodity sector, and its daily price moves influence many commodity markets, including the metals.
--Watch China economic developments. The world's second-largest economy (and also a major metals importer and consumer) is presently sputtering a bit, even though it's annual growth rate remains well above the other industrialized economies. The metals markets have been pressured in part due to notions of an economic slowdown in China. The U.S.-China trade dispute has been a drag on the Chinese economy, so any new developments on that front will be market-sensitive for the metals.