Gold trade seems to be breaking all of the “rules.” Despite discounts in the U.S. dollar pricing gold has failed to make headway, and in the midst of political chaos in Washington, it has barely budged. However, it is hard to count out the gold bugs in an environment in which we continue to face potential inflation pressures at the hand of monetary policy, and uncertainty is running rampant.
Seasonal tendencies are also working in favor of gold prices finding a bottom in the coming sessions. Although data compiled over the previous 25 years can merely be considered overall neutral to supportive, the previous 6 years have seen notable rallies in the precious metal in mid-to-late December which often extends well into January. With that said, an early December dip appears to be relatively common. These stats put us on notice for a possible buying opportunity at better levels.
From seasonals and broad based fundamentals, we look to the chart for guidance.
February gold has formed a large wedge pattern that most certainly won’t last but offers some guidance for those looking to get into the metals market at discounted prices. … After all, timing is everything!
The market is currently hovering near the $1,690 area, an internal trend-line support level. Nonetheless, our models suggest the probabilities are calling for a break of support as the sell stops of traders are elected in what are thinly traded holiday markets.
Specifically, we are looking for a fall-out into the $1,670ish area. At such levels, we feel the bulls might be interested in looking for higher prices. However, please note that illiquid December trade can sometimes see exaggerated moves; if such an event happens a quick run to $1,625 cannot be ruled out. … but if seen would likely be a rather high probability entry for the bulls.
Keep in mind that gold futures are a “big boy” contract; it moves quickly and profits and losses can mount in a matter of minutes. However, smaller capitalized or risk averse traders can look to the mini and micro versions of the futures contract for more comfortable speculation.
Market: Gold, GC_f, GCG3, GGC, GLD, YG, MGCG3
Buy or Sell?: Gold is on the decline, but it might not last...look to be bullish on a large dip. $1,670 first support.
Range: $1,670ish should be supportive for gold prices, if so $1,730 will be the first upside target.