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A Solid Gold Trading Plan

Volatility and FOMO guaranteed...

GOLD is once again dashing to new all-time highs, writes Greg Guenther in Addison Wiggin's Daily Reckoning.

Investors are finally starting to notice what we've been talking about for months: A new bull run for precious metals is upon us. And if you pay close attention, you have the opportunity to ride the early rallies as gold, silver, and other metals take the market by storm.

We've closely followed gold's breakout potential since late last year when the yellow metal finally posted its first monthly close above $2000 – and subsequently took its sweet time consolidating before extending this breakout move in early March.

But most market watchers haven't paid close attention to precious metals. In fact, up until just a few weeks ago, you would've been hard-pressed to find any talking heads mentioning gold on the financial news networks. Too many other distractions clogged the airwaves, from Magnificent Seven stock stories to the amazing parabolic rallies sprinkled throughout the popular semiconductor names.

Fast forward to this week and you'll notice that the semis have gone nowhere since early March – right about the same time a spark was lit under precious metals.

Now, we're seeing the first signs of mainstream investors and analysts buying into the new golden bull.

Precious metals are getting their due on the financial news as strong rallies lift gold to gains every week. Silver is also snapping back following months of ugly underperformance. Platinum and palladium are catching bids. Base metals like copper are extending their respective breakout moves. Everywhere we look, we're finding bullish charts.

So it's no surprise to see the big boys adjusting their year-end price targets.

Goldman Sachs is the latest firm to grab the tail of the stampeding gold bull. It just lifted its year-end price target on gold to $2700 after spot prices hit a [then] new record high above $2370, calling the new gold bull unshakable.

"Despite the market pricing progressively fewer Fed cuts, stronger growth trends and record equity markets, gold has rallied 20% over the past two months," reads the note, via "The traditional fair value of gold would connect the usual catalysts – real rates, growth expectations and the Dollar – to flows and the price. None of those traditional factors adequately explain the velocity and scale of the gold price move so far this year."

You might be tempted to dunk on the folks at Goldman for being late to the party when it comes to the precious metals rally. But I think it's silly to take these "target adjustments" seriously.

First of all, these ideas are for the media and the public's consumption. I do not believe it reflects the firm's investment strategy. We don't know what they're buying or selling at any given moment, but I seriously doubt they're following these targets as their primary research.

Next, it's important to understand that this is how the game is played. Any analyst target is a moving goalpost. If gold were to crater back below $2000 (which I don't think will happen) another updated target would magically appear that fits with the new trend.

Now, the main bone I have to pick with the fresh Goldman target is how it claims that this new gold rally is unshakable- because it would not surprise me to see more shakeouts and intraday volatility as new traders and investors pile into metals and miners.

We're already seeing just that.

Remember, gold's decade-long bear market forced just about everyone out of the metals trades until recently. Gold mining stocks, for example, have been dead money for years. No one wanted to own these names when gold was going nowhere.

Naturally, these trades are beginning to come back to life as gold futures extend their historic breakout. As the FOMO brews, we're starting to see some volatile sessions stack up in futures and precious metals stocks.

Again, we haven't seen this type of high-volume chasing in these stocks until recently because no one wanted to be involved in these trades. I still believe we're in the early innings of a bigger, secular metals rally. But it won't move higher in a straight line. The branches of these trees will shake – sometimes violently – as more investors pile in.

A major component of any sound trading plan involves understanding the current market environment.

Over the past several weeks, we've discussed how traders can capitalize on shorter-term moves in gold via the futures market, mining stocks, or gold funds as the environment improves throughout the sector. This also means that we have the opportunity to attempt to profit from breakout strategies as individual mining stocks heat up.

Knowing your desired time frame is critical when attempting to place your buys and sells as the gold trade heats up. It might seem obvious that longer-term-minded investors will be best served if they patiently buy dips, while shorter-term traders can attempt to ride momentum moves and breakouts. Yet it's important to remember to have your time frame in mind and execute your plan accordingly.

It's all too easy to tear up your plans and just close your eyes and buy when you see your desired stock or ETF explode higher. Panic buying is real – and can be dangerous!

As for price targets, don't get too caught up in being right or hitting a magical level like gold $2700 by the end of December. For the record, I tossed out a $2600 target way back in mid-December 2023. It's a decent roadmap. But we'll need to hone in and adjust the route along the way.

We're already witnessing some wild action in precious metals and stocks as the tensions between Iran and Israel evolve. Don't be afraid to take a step back from the charts as additional volatility barges into the markets.

Publisher of Agora Financial, Addison Wiggin is also editorial director of The Daily Reckoning. He is the author, with Bill Bonner, of the international bestsellers Financial Reckoning Day and Empire of Debt, and best-selling author of The Demise of the Dollar.

Addison Wiggin articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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