The Gold market has become a very technical trade recently. It feels like the market has lost many investors due to its pull back from the $700 level. This is to be expected, as it fights to earn some allocation of investor capital against a stock market that has made new weekly highs in eight of the last nine weeks.
I believe much of the “safe haven monies” have left the Gold market and have been inserted into the equity markets. Merger mania or acquisition speculation are the foundation for the belief that investors may get “more bang for their buck” out of the equity markets at the present time. There is a saying among the trading community “The trend is your friend until it ends,” and at this time the Stock Market has a very Bullish trend.
That said, with the ever increasing tension in the Middle East , rising energy prices, and an unstable housing market, I believe the gold market will hold the attention of worldwide investors. In many countries of the world owning gold is a status of wealth and success. To many investors gold is considered a safe haven and a hedge against weak currencies. Gold is still considered a world currency. Some might say “Gold is the World currency, but Oil makes the World go round.”
I believe long term Bullish Call Option spreads are the best way to trade Gold these days.
I am a swing trader by nature and still trade my pivot/resistance/and support numbers.
I strongly urge all Gold traders to “take the money” if and when profits come along, and avoid un-hedged (naked) positions over night. I learned a long time ago that traders never go broke taking profits. I’ve seen more traders turn winning trades into losing trades trying to squeeze out that last dollar.
Worldwide interest by investors in the gold market has certainly contributed to added volume in the Gold markets. Many of these traders are new and under-capitalized, however. This is another reason the gold market has such volatile swings. Considering that the 100-ounce Gold futures contract is $10.00 per tick, many under-funded traders are forced to take losses before they get a chance to take profits. Self-directed electronic traders know that scenario well. There is no crystal ball to trading, but in my opinion using guide-line support and resistance numbers, researching charts, and disciplined money management will give you a better opportunity to profit trading markets in general.
While options typically expire worthless if not managed properly, they offer a great hedge (insurance policy) and supply a great service to the trading community. I believe Bullish and Bearish Gold Call Spreads are effective trading strategies in this environment, and very useful for traders who have a strong market opinion and are not willing to risk large amounts of money.
Senior Commodity Broker
Manduca Trading, LLC