Gold & JNUG

Malleability is a measure of how easily a material can be hammered into thin sheets. Gold is the most malleable off all the elements. A single ounce of gold can be beaten out into a sheet that is 300 square feet.

We may be about to see a short-term bounce in Gold.  This is because Gold spent the last two weeks trading sideways and now it looks as though it is about to break the downtrend that began in the middle of November. You can see that it is testing the downtrend line that I have drawn.

It’s important to understand that trendlines aren't magical or mysterious...at least when they are understood and utilized correctly.  They are simply graphical representations of the forces of supply and demand as time passes.  Prices are always doing one of three things…going up, going down, or staying the same.  A correctly drawn trendline illustrates this and when the trendline breaks, it means the forces of supply and demand are equalizing or are about to change leadership.

In this case the Bears, or forces of supply, were in control of the market from early November until about two weeks ago.  Since then the forces of supply and demand have become equalized.  This means that the prices have stayed around the same levels, or 'consolidated' or traded 'sideways'.  Now if this downtrend line breaks it could means that the Bulls, of forces of demand, are about to take control of the market.

My target for Gold would be around $1,225 because that is the level that the sell-off began at.  Think about this dynamic.  Everyone who bought Gold at this level has had a loss since then.  Many of these people have told themselves 'if gold gets back to $1,225 I will sell it so I can exit this position at breakeven'.  (Sound familiar?)  This will increase the amount of supply around $1,225 so if there is a rally it should run into resistance there.  My initial stop-out would be at the $1,125 because this has been the bottom of the recent range.  If this breaks it may go lower so this is a logical place to have it.  I'd have a trailing stop-out if it does rally.

A more aggressive way to profit on a move up in Gold would be to use JNUG...the Direxion Daily Junior Gold Miners Index Bull 3x Shares.  This is an Exchange Traded Note that is supposed to have daily investment results that are 300% of the Market Vectors Junior Gold Miners Index.  It is hard to correlate this security to Gold but my guess is that if Gold gets to $1,225 then JNUG would rally to at least $6.  It closed at $4.30 so if it does get up to $6 it's an appreciation of about +40%.