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Gold: watch these 2 key levels

Commentaries & Views

As a long-term bull market in gold is underway it is important to keep an eye on the critical levels of support and resistance. For those of you holding physicals or investing in non-leveraged products these twists and turns might not mean as much as someone using futures which allow speculators to use leverage to control an asset. At the time of this writing the initial margin on December 100 oz. gold futures is $4950 and maintenance is $4500. This means for $4950 you can control 100 oz. of gold and as an example if you used a spot price of $1500/oz. you are controlling $150,000 of gold for $4950. So with that kind of leverage it becomes essential to pay attention to critical levels and remember that there are 50 oz., 33 oz. and 10 oz. contracts with lower margin requirements so when using leverage, use a product that you are comfortable handling the daily fluctuations.

The best way to get a gauge of the average true range of gold on any given day is to download the RJO Futures Pro platform, load a daily chart of gold and apply the study “ATR”. What you will see is that ATR is about $20 with a spike on August 13th where the range was $56.50. This $56.50 range represents the critical levels of support and resistance and can lead to the next extension up to $1600 or a breakdown to $1450. Right now, we are in this awkward period of consolidation where the market is trying to digest the U.S.-China trade war, the probability of additional interest rate cuts and the geopolitical tensions around the globe.

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Daily Gold Chart and Price Outlook

Breaking down the technicals besides ATR, I like to look at MACD, Stochastics, ADX, Volume and two major moving averages. The MACD is turning lower as well as stochastics meaning that this market is coming out of a short-term bull move and into a sideways consolidation. You can check the strength of the move by looking at ADX where it has declined from 60 to 49 recently showing that this upward strength is losing its steam. The two big volume spikes we saw this month were when the Yuan dropped below 7 and the second was when Trump indicated that he was delaying the tariffs on China. Since then volume has been sideways meaning the market is waiting for the next major event. Looking at the 100 and 200 DMA we can see we are in the clear, so my opinion is to wait for the next breakout or break down to position yourself in the market. Also remember options are a great way to balance risk and speculate to the upside while complimenting your futures positions, so if you don’t have an options trading strategy guide please register for one below.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.