• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Wanna Bet a Buck on a Gold Play?

Let's look at a trade in this precious metal, why it didn't move as expected and where it could pan out.
By ED PONSI
Jul 19, 2022 | 06:00 AM EDT

For decades, investors have been told that precious metals are the ultimate hedge against inflation. For years, every news and financial channel ran a volley of commercials stating the importance of buying gold, now, before inflation rears its ugly head.

Fast forward to 2022, and after decades in remission, inflation has finally reappeared. Consumer prices are rising at their fastest pace in over 40 years. It's finally time for gold to shine.

How did gold respond? Year to date, gold has lost about 7.5%.

Why did gold fail to live up to its reputation? Gold has a tendency to run counter to the U.S. dollar, which recently reached its highest level in nearly 20 years. That strength in the greenback held gold down during the first half of the year, but is that about to change?

Charts by TradeStation

According to the charts, the dollar appears ready to dip. The global reserve currency is still in a bullish channel (diagonal lines), but may need to cool down after extending to its upper channel line.

Another indicator is also signaling a pullback in the dollar. The greenback's RSI (relative strength index) is falling from an overbought level (arrow), and is now giving a neutral reading.

Meanwhile, gold's decline has taken it to its lowest level since August. Gold has pulled back to the $1,700 area (black dotted line), which worked as a key reversal point on several occasions last year (arrows).


After falling to a low of $1,700 in April of 2022, gold shot higher for a 13.5% gain in two months. A subsequent pullback saw gold bottom at $1,693 in August of last year. Over the next five weeks, gold climbed 9.18%.

Because gold is trading close to a major support level ($1,700), we can construct a low-risk trade around that key price point.

Here's my plan: I'm buying gold as close to $1,700 as possible (green). If support breaks, we'll know immediately that the trade isn't working out, and we'll exit at $1,660 (red) or higher for a manageable loss.

This trade includes three separate targets (blue). At each target, we'll exit one-third of the position and raise the stop.

If the first target of $1,740 is reached, we'll raise the stop to just below $1,700, removing any risk from the remaining portion of the trade. If the subsequent target of $1,780 is achieved, raise the stop to $1,740, to lock in gains.

Even if we only get an oversold bounce to $1,740, this trade will be a winner, because we'll close one-third of the trade and raise the stop approximately to break-even. Naturally we're hoping for more, but as worst-case scenarios go, this one isn't bad.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Ponsi was long August 2022 gold futures (symbol GCQ22).

TAGS: Gold | Investing | Options | Stocks |

More from Stocks

Don't Just Sit There and 'Hope' for Your Stocks, Make a Decision

James "Rev Shark" DePorre
May 27, 2023 10:00 AM EDT

The biggest investing and trading mistake that people make is that they don't have a plan.

Nvidia Caught Traders Off Guard, Will Debt News Do the Same Soon?

James "Rev Shark" DePorre
May 26, 2023 4:57 PM EDT

We got a broad rally on Friday after a week of narrow action -- but once the debt ceiling news hits, the market will go on to the next stage of action.

Here's What Should Recharge Tesla's Rally

Bruce Kamich
May 26, 2023 3:45 PM EDT

I have a new price target for now.

Costco Slows But Should Do Well in a Tougher Climate: Here's the Trade

Stephen Guilfoyle
May 26, 2023 11:30 AM EDT

The company could use the extra revenue that an increase in membership fees would produce, but it has been reluctant to go there.

Stocks Are Climbing a 'Wall of Worry'

Bret Jensen
May 26, 2023 10:55 AM EDT

I'm constantly looking for opportunities in this overvalued market.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:48 AM EDT CHRIS VERSACE

    Latest AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • 03:25 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Don't Just Sit There and 'Hope' for Your Stocks, M...
  • 07:32 AM EDT BOB LANG

    Webinar Thursday After the Close: Option Spread Trading

    Thursday, my good friend and colleague Sam DeMarco...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login