The information and opinions expressed below are based on my analysis of price behavior and chart activity
February Gold
The February Gold contract rallied sharply today, up 36.20 at 2754.60, as of this writing. This puts the market at prices we haven’t seen since Election Day. The market had started to roll lower a few days before the election, but the selling pressure increased as the results became apparent. Prices retraced about 50% of the rally that took place from late June-late October, closing just below that level at 2593.60 on November 15th. That day happened to form a Doji on my candlestick charts, which is unusual. Typically, bars like that indicate a point of price equilibrium or indecision in the market, to my eye. We’ve subsequently seen prices recover, shaking off the huge down day on November 25th. The 5-and 10-day moving averages on the chart above flipped back to the bullish side on Monday of this week and prices have gained over $94 in just 3 sessions this week. Demand appears to remain strong, with news reports indicating that China has resumed buying the precious metal last month, after a 6 month pause on buying. Central banks around the world have been continuing their buys of Gold, as well. Economic uncertainty has spurred buying interest outside the central banks. Today’s CPI reading of 2.7% tells us that above-target inflation has not yet been reeled back in. Many folks view Gold as a “safe haven”, which makes sense when you consider that it is one of our oldest forms of money or exchange. The downside to that argument is that Gold does not pay a steady return in our modern age, like Bonds do. Bonds are typically a safe haven, particularly when considering government bonds and they usually pay interest. But that’s a different article for a different day. I would advocate for aggressive and well-margined traders to establish long positions in futures contracts. I think the risk level of last Friday’s low (2635.60) would be appropriate, give the volatility in this market. It can make big swings, so you may need to give it some room, initially. Those that are less aggressive may do well to consider February Call options. Those expire in 48 days and should give enough time to capture the move. 2800 Calls are the next round number above the market and those last traded at 43.20 today, or $4320 plus commissions and fees, per option. That’s about 1/3 of the futures margin and doesn’t tie up as much capital. The October 30th contract high is at 2826.30. A 2850 Call last traded at 28.70, or $2870 plus commissions and fees. That would set that target above the contract highs. As I typically would do, if you choose to go the option route, place a GTC order to exit the position at 2x what you paid for it. If that gets filled, re-evaluate the market. If things are still bullish, find another call option worth about what you paid for the first one and re-enter the market. This allows you to take profits as they accrue, while maintaining a long position. Support levels may be found near 2748.00 which was the Nov 25th high, 2700 (nice round number) that coincides nicely with the 50-day moving average, currently at 2702.50. The 5-and 10-moving averages are at 2692.80 and 2681.30, respectively. Both of those averages are pointing toward higher prices. Resistance levels might be found near 2800 (round number) and the contract high at 2826.30. Beyond that, I would see 2900 and 3000 as likely upside targets. Volume was unusually high today, with over 246,000 trades today. The previous high volume was about 180,000 on November 29th. More often than not, when strong moves are made on high volume, they usually stick around and continue the direction. Considering that Gold has been in a strong trend for over a year and has had a healthy 50% retracement and recovered, I don’t currently see any signs that this trend is changing.
Jefferson Fosse Walsh Trading
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