Gold has had a fantastic run up this year.
In fact, over the past year we saw gold prices surge over 39% taking it to all-time highs at over $2,060 an ounce.
Best yet, we called it!
However, since the gold price hit my first price target at $1,960, in August, things turned very sour very quickly.
Just in the last week alone, we saw gold's worst weekly loss since November 2016.
And it looks like, this is just the start for gold's downside…
In this article, I'm going to show you why I believe gold is now set to crash over 11% before year end and how we can profit from the drop.
Let's start with the main factor…
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The US dollar is rallying and it’s not looking good for gold
The main factor for gold’s next slump, is thanks to the US dollar.
You see, gold is priced in dollars. And when the dollar strengthens the gold price drops along with other commodities.
This is because when the US dollar rises, things become more expensive to mine, manufacture and ship abroad.
This takes a toll on resource companies, which leads to investors taking their money elsewhere. And after gold’s rally, I can imagine how investors are now cashing in their profits before the drop.
And last month, the charts showed, that the US dollar Index’s downtrend has now come to an end.
Take a look at the chart below.
We can see that since March, the US dollar has been coming down -dropping from 1,300 to 1,160… And last month, the price broke out of its downtrend and into a new bull market.
The price also broke above the 50 day moving average, which is another indication for upside to come. The 50DMA is a technical signal traders and investors use to determine the market’s trend.
When price is above the 50DMA, it’s bullish.
When price is below the 50DMA, it’s bearish.
And now that the US dollar has broken above the 50DMA, it looks like it’s going to continue up.
In fact, last month we saw the new orders for manufactured durable goods orders rise for the fourth month in a row.
In August it increased $1 billion or +0.4% to $232.8 billion according to the US Census Bureau.
This is a strong indicator which tells us the US economic recovery is on track and so is the confidence in the US dollar.
Here’s what Saxo Bank analyst Ole Hansen told Reuters…
“As long as we see strength in the dollar, then undoubtedly we are also going to see gold struggle,”
Two alarming indicators that could signal an 11% gold crash
In the daily chart, we can clearly see gold ran up from $1,480 in March to $2,060 in August.
During that time, the price moved up on a strong uptrend (green line), showing it was a bull (up) market.
However, in the last week, things changed.
I saw two alarming price moves that told me, the gold price was now going to drop.
First, we saw the gold price break down through the uptrend sending it into a bear (down market).
Second, in the last three months, the gold price bounced in a reversal pattern called a Symmetrical Triangle (shaded area).
This is where the price moves in a sideways triangle pattern, and then breaks below the apex.
Now we can expect some selling pressure due to all of the factors, I mentioned today.
This will most likely send the price to the next support (floor level) at $1,678.
While the price of gold drops in the next few weeks, here's what I'm going to do.
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How I'll profit from the 11.49% gold crash
First, I'll be looking to sell (go short) JSE gold stocks and other commodities that move down with the gold price. The only way you’ll see these trade ideas is through my Red Hot Storm Trader service
Second, Trader X will be looking for stocks to buy and European stocks to sell while the US dollar continues to rally. Read more here...
Analyst, Red Hot Storm Trader