The gold trade seems to be breaking all of the "rules." Despite discounts in the dollar, the yellow metal has failed to make headway -- and, in the midst of political chaos on Washington, it has barely budged. However, it is hard to count out the gold bugs in an environment that has us continuing to face potential inflation pressures at the hand of monetary policy, and where uncertainty is running rampant.
Seasonal tendencies are also in favor of gold prices finding a bottom in the coming sessions. Although data compiled over the previous 25 years can be considered merely overall neutral to supportive, the previous six years have seen notable rallies in the precious metal in mid-to-late December -- which often extends well into January. That said, an early-December dip appears to be relatively common. These statistics put us on notice for a possible buying opportunity at better levels.
From seasonals and broad-based fundamentals, we turn to the chart for guidance. The chart of the February gold contract has formed a large wedge pattern. This most certainly won't last, but it does offer some guidance for those looking to get into the metals market at discounted prices. After all, timing is everything!
The price is currently hovering near the $1,690-per-ounce area, an internal trendline support level. Nonetheless, our models suggest that probabilities call for a break of support as traders' sell stops are enacted in these thinly-traded holiday markets. Specifically, we are looking for a fall-out into the $1,670 area (see chart below). At such levels, we feel the bulls might be interested in looking for higher prices. However, please note that illiquid December trade can sometimes see exaggerated moves. If such an event occurs, a quick run to $1,625 cannot be ruled out -- but if seen, it would likely be a rather high-probability entry for the bulls.
eep in mind that gold futures are a "big boy" contract. These prices move quickly, and profits and losses can mount in a matter of minutes. However, smaller-capitalized or risk-averse traders can look to the mini and micro versions of the futures contract for more comfortable speculation.
In all, there is substantial risk of loss in trading futures and options. This is not suitable for everyone.