24-hour gold price
On 6/11/07, gold price has appreciated USD 10 in New York trading session and another USD 10 on the next day of Asia trading session . Should you buy more gold at that time to avoid missing the boat? It seems the price of gold does not stay around USD 800 for too long. To get a better picture, let’s refer to weekly chart of gold.
Weekly chart of gold
From gold weekly chart, gold is in extreme overbought condition. Can the overbought condition be more excessive? Sure, judging from easy monetary policy of the Fed. Can the price of gold reach upper boundary of medium term up trend in the next few months, e.g. between USD 900 and USD 1000? It is possible. However the question is how it is going to reach there?
Gold price(1980-1984)
If you are going to hold gold for the next ten years, then there is no problem buying more gold at that time. The reason is the last high of gold price is USD 850 around 1980. If you adjust the price of gold using 3% inflation, then the price of gold could go to USD 1888(850 x 2.221). If you are short term gold trader, there is no problem initiating a new position in gold as long as you have a tight stop below lower boundary of power trend line. However if you are in between being long term investor and short term trader, then you need to access the situation. You need to know the potential loss and potential gain. From the weekly chart, majar support is 725. Therefore potential loss is 830-725=105 and potential gain is 1000-830=170. Therefore gain to loss ratio is 170/105 = 1.62 which is not really good. A good ratio is above 2. From this setup, it is very important to know in advance of your strategy and investment time frame: long term, short term or in between. You also need to access risk, e.g. potential gain to loss ratio. This is one of main differences between investing/trading and gambling. Investing/trading is not a bet but a calculated risk taking.
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