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Gold Investors: Be Wary Of The "Noise"

Markets have been jittery, choppy and volatile. Looking at the daily chart for August Comex gold futures there are some "noise" lately. That is a term to describe "trendless" or even meaningless price action. In the very short-term, there is not a clear trend for short-term gold traders. Day traders can look to scalp their profits quickly and get out. Swing trading opportunities are more difficult right now.

On the daily gold chart, a clear uptrend was seen from early June to about July 10. But, now a corrective, noisy phase has set in. This is a time that some traders may choose to simply step away from the markets. The August doldrums may be emerging soon. Liquidity tends to dry up in the late summer, with many professionals away from their desks.

Expanding out the analysis, a look at the weekly chart of the nearby Comex gold futures, with an overlay of the weekly U.S. dollar index reveals a generally strong correlation between the two markets. That's no surprise. However, in recent months, both of those markets are really just in a big range. We are seeing noise within that range.

Let's take a look at Figure 1 below. For now, the U.S. dollar index is trapped between support around the 78.90 zone and resistance around 81.50. Nearby gold futures are also trapped in a large multi-month range between roughly $1,182 per ounce and $1,391-$1,428. Sure, there's plenty of room for minor trends within those large ranges. But, the bigger, long-term picture remains range-bound.

Longer-term gold investors always need to remember their time horizon. For those who are looking at a multi-year to multi-decade timeframe, what unfolds in the gold market next week really doesn't matter. The bigger, longer-term chart points like the $1,182 support floor are more important to consider.

The next few weeks could see more of the same. Choppy trade vulnerable to whipsaw type of conditions —especially as liquidity starts to dry up in the late weeks of summer. Know your timeframe and trade it. Shorter-term traders can jump in and out of the market with their quick scalps. Longer-term traders may be better off just setting their alerts for multi-month price points and joining the other traders who are heading off on vacation.

Don't get chopped up by the noise.

Kira Brecht is managing editor at TraderPlanet.

By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht



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 precious metal products, 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.
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