Shorting Gold Using DZZ February 25, 2009

Is it time for Shorting Gold? This is a potential trade using DZZ seeking to profit from a decline in the price of Gold. DZZ is a Double Short Gold ETN.

My basis for this trade has nothing to do with any concerns of a continued flight to hard assets nor any price increase driven by fear. This is a trade on the short side against Gold using the fact of Gold recently hitting the psychological $1000 price level.

Sometimes over-analyzing a situation causes us to overlook what a chart is telling us. By stepping back and taking a more simplistic approach, we can sometimes remove our emotional instincts and look at what the chart is telling us, allowing for additional trading opportunities.

Here are links to other pages I have posted on Gold:

Here are a few charts using different time frames to support my idea of opening a short position against Gold. The first three charts are static images courtesy of Kitco.com. You can find updated Gold Charts by clicking on any of the images.

Gold Chart 30 day

Gold Chart 1 Year

Gold Chart 5 Year

DZZ Double Short Gold

Over the last 2 days DZZ has moved up over 10% for great short term trades. Even at today's price, if you think Gold has a possibility of moving lower as I explained above, DZZ is a good buy today. Since this example is based on the idea that Gold will not go much above $1000 in the near term if at all, using a Stop Loss around $18.00 would be good to use since DZZ went down to $18.37 when Gold was around $1000 recently.


Update 03/10/2009: Since this article was posted 2 weeks ago, Gold has moved lower as forecasted and had a bounce off of the $900 support level. After the bounce higher to the $940 level, it has continued its decline and is now trading at $902 as I write.

Here is an updated 30 day chart of Gold. You can see that after it broke through its Trend Line noted in the first chart on this page, it started its decline.

Gold Chart 30 Day

Looking at a current 1 year chart below, Gold 1) not only bounced off the $900 level which provides round number psychological support but has since started to decline again, 2) the same $900 price level is at an additional trend line and 3) you can see a Head and Shoulders pattern has now formed which should provide some additional selling from Pattern Traders. Any considerable close below $900 may provide enough selling pressure to allow for a continued decline in the coming weeks/months. The key to watch is the $900 price level/trend line.

Gold Chart 1 Year

With the Major Stock Indices currently trying to rally, this will likely provide additional selling in Gold as a flight away from Gold and into Stocks for those who are afraid to miss any rally in stocks.

Here is an updated chart of DZZ. You can see that the previous resistance level at $20.50 that was broken through in the chart of DZZ above, became a support level. After the initial +10% noted previously, DZZ has since moved up another +10% from the time I added this article. Just as Gold is at a key level, $900, DZZ is also at a resistance level seen in the updated chart below:

DZZ




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