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Gold Market Alert: Now is the Time to Be A Contrarian

Alert to be gold contrarian

Over the last two weeks, we witnessed a $70 decline in gold prices, all without a single bounce.

There’s no escaping the fact the move looked ugly:

This plunge in price was enough to knock the courage out of any gold bug. It is also significant enough to encourage short-term speculators to consider going short the yellow metal by selling COMEX futures or buying puts.

At this point, it may be too easy, and perhaps too unbelievable, to believe in the old investment maxim that going against the crowd can often be your best bet. Why go against popular sentiment now, considering the massive decline in gold prices over the last few weeks?

After all, gold is in a massive downtrend, right? Well, it depends on the length of your outlook.

Sure gold has been declining for some time. But from a long-term horizon–and investing is all about long-term horizons–gold is at a significant price level.

Take a look at this chart:

Gold Decline

Gold Decline

Today, gold just bounced off its long-term trend line (1). So to answer the question whether gold is in an uptrend or downtrend, it has actually been trending up since November 2016. The declines you may have been experiencing may be nothing other than intermediate-term “corrections.”

The Relative Strength Index (RSI), an indicator used to gauge overbought and oversold levels, is giving us an extreme oversold level at (1a).

You can see similar activity during the December 2016 gold correction (2) wherein the RSI reading reached an equivalent oversold reading at (2a). As you can see, the price of gold began trending significantly upon bouncing off the December trend line.

For investors looking to get into the markets, now more than ever is the time to buy gold.

Should the trend hold, this may be the only time to get in at the “bottom floor” of this trend.

Another way to view the current situation is by taking the opposite perspective: if you were bearish on gold, would you have the courage to actually go “short” gold using COMEX futures, especially after seeing where gold is in the context of the current trend?

From a technical standpoint, it appears that gold may be continuing its uptrend. And you just witnessed its critical bounce.