Gold - a new week with new defined levels
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
With the first full week of trading in 2020 behind us the market volatility has exploded with the average true range (ATR) in gold doubling from Decembers $10-12 a day high to low to Januarys $22-$25. This type of market behavior gives traders little room for error so modifying your strategy might be prudent at this time. A trader could go a couple different routes with the first one being reducing the number of contracts traded by half. So, if you trade 2 contracts, you can switch to 1 until the market normalizes. The second would be adjusting your strategy to avoid what we call getting “chopped up” by using options for staying power in the market. For instance, you might be long 1 gold futures with a long 1540 put as protection thus giving you a synthetic stoploss. There's nothing more bothersome that getting stopped out because the ATR exploded just to see the market reverse and close on the highs in your favorable direction.
We are packed with several different obstacles this week with CPI, PPI, Retail Sales and not to mention the signing of the U.S./China trade agreement. Its important to stay on top of these reports and dates so please register for a 2020 futures calendar.
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From a trader’s standpoint the market still looks to be in a bull wave with a small blow off top. Longs will most likely ease back into this market with critical support at $1540. If we close below this level and open the next day on a weaker note, reassess your long position with expectations of washout down to $1504. I am keeping a strong eye on stochastics and DMI in the event we go into a consolidation phase. This could be the best-case scenario and allow gold to build a strong base before attacking the highs again. Remember with fresh record highs in equities, I must think it could be a smart time to ease into more defensive assets like gold and silver for long term investments with the right strategy.