Gold: Look Out Below

I’ll cut right to the chase…

Gold is set to drop to $1,550.

The spot price briefly dipped below $1,640 early yesterday, posting new five-week lows. It rallied back above $1,650 by the end of the day — but the damage is done.

After a weaker push last summer that failed to break $1,800, gold has consistently trended lower for more than four months. Yesterday’s brief breakdown is just advance notice that lower prices are in store for gold in the near future…

Looking back over the past two years, you can see how gold has significantly lagged the S&P 500 since mid-2011. Even a brief moment of outperformance early last year was short lived when the spot price failed at $1,800 for the third time in less than 12 months…

Gold just can’t shake this slump. And as $1,650 falls this morning (Gold sits at $1,647 now), $1,550 won’t be far behind.

Now, I’m not some lunatic who doesn’t understand the strong fundamental arguments backing gold. Rampant money printing and overseas demand are the first that come to mind. Both are valid points. But gold’s decade-long bull market has attracted more than a few momentum buyers. And like it or not, these weak hands are adding to the selling pressure.

Here’s what you have to do:

First, don’t get too hung up on the story right now. You can scream about how gold isn’t acting like you think it should until you pass out. But none of your arguments can change the price action.

Next, if you’re a long-term gold buyer, you have to understand just how important the $1,550 range has become over the past two years. This is gold’s price floor. A bounce higher from the $1,550s is the perfect long-term entry point.

However, if we see continued weakness at $1,550, all bets are off…

By Greg Guenthner

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