The Technical Side of Gold

BY JMTG’s Head Analyst James Mound

June 16^th, 2003

With gold seemingly diverging from is severe cross interrelationship with the dollar, stock and bond markets, we are left to possibly over-analyze gold’s short and long term technicals.  Upon review, it appears the short term outlook has mixed merits with the overall long term outlook showing much stronger evidence of an impending bull run.  This is hurt significantly by the overwhelming amount of long specs in the marketplace, suggesting a strong inclination to the contrarian viewpoint and a strong bear break ahead.  If any clear analysis can be brought to light, it is the increase in price volatility of late indicates an impending breakout with heavy implications of massive price movement in one direction or the other.  This would lead to more non-directional trading such as long straddles or strangles, or protected ratio spreading of options with a direction in mind, but with limited exposure.  Another important note is gold’s recent bounce off critical trend line support and significant break through several additional resistance points.  I am forced to lean towards the longer term trends and continue to view dips as buying opportunities, while maintaining patience in the marketplace through controlled trade design.

*While a break in the trend line support in May indicated a failed retest of the 390 spike high, it is important to note that the retracement and ultimate support areas have yet to be truly tested on the downside.

**Daily Gold chart courtesy of Gecko Software’s TracknTrade.

*The weekly chart outlook offers several substantial bull arguments, with trend line support holding and a widening price channel developing to suggest increased price volatility and more negotiability on the short term technicals.  While key gap support was recently broken, suggesting a pivot point reversal with a possible island reversal in the making, we still have two significant support areas left to break to give into the bear argument.  The nearest one is yet another gap support area just under recent lows, supporting a 350 price support area.

**Weekly Gold chart courtesy of Gecko Software’s TracknTrade.

*On the longer term monthly chart, gold is still holding a beautiful arc saucer bottom, with longer term trend line support holding up. 

**Monthly Gold chart courtesy of Gecko Software’s TracknTrade.

*Disclaimer: There is risk of loss in all commodities trading. Please consult a James Mound Trading Group Broker before you trade for the first time. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading. James Mound Trading Group, or anyone associated with JMTG or moundreport.com, do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (clients or otherwise). Past results are by no means indicative of potential future returns. Information provided is compiled by sources believed to be reliable. JMTG or its principals assume no responsibility for any errors or omissions as the information may not be complete or events may have been cancelled or rescheduled. Any copy, reprint, broadcast or distribution of this report of any kind is prohibited without the express written consent of James Mound Trading Group LLC. Total cost, or cost/credit of trade (as referred to in the trade above), includes the cost/credit of entry, commissions and fees. Typical commission is an approximate mean of commission rates amongst JMTG customers, but can be more or less depending upon the individual account/customer, services rendered, account size, trading volume, etc. Options do not necessarily move in lock step with the underlying futures movement. Commissions at JMTG range from $3 to $27.50 per side depending upon the market traded and specific commission rate charged to the client. Fees range from $2.88 to $7.50 per side depending upon the market traded.