Gold Trading: A Tactical Follow-Up
By Bryan Bottarelli
In this article
I openly admit - I'm not a gold guy. Never have been.
When it comes to predicting the moves of gold, you must first learn to ignore the hype, ignore the stories, and ignore the static.
Here's what I know to be true: Lately, gold has traded in tandem with equities.
Over the last few weeks, I've had to endure a lot of “gold talk” coming from my partner Adam Lass. And when I say “gold talk” I'm referring to Adam's ongoing obsession with tracking the movements of the yellow metal and placing these moves within the context of what's happening in the day's market action.
Now I openly admit -- I'm not a gold guy. Never have been. So as you could guess, these intense philosophical discussions from Adam typically fall on deaf ears. But nevertheless, if Adam wants to talk gold -- then I certainly don't contain the ability to stop him.
One example of Adam's gold study came last week, when an intra-day e-mail exchange between us read as follows:
“Bryan, listen to me carefully. Gold is now a moderately interesting investment at best. Some years it grows like a weed and some years it sits like a rock. And while I have heard countless explanations as to how it is inflation-proof, when I parse out those explanations, their roots seem to be buried in the soil of faith: Gold does not deflate because we believe that this is so, and will jigger the math any way we can to prove this article. In the end, I would much rather ride the waves of turmoil created by these Gold Jihadis and Crusaders as they fight for control of this supposed holy grail. Waves are, after all, my art and trade, and the wavelike fashion in which gold trades on a weekly basis is quantifiable, track able and predictable.”
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After following up with subsequent phone conversations, I finally got to the core of what Adam was saying. When it comes to predicting the moves of gold, you must first learn to ignore the hype, ignore the stories, and ignore the static.
Gold Trading: Gold Breakouts
According to Adam's studies, gold breaks out or breaks down at these barriers approximately four times a year (on average) which leaves you some 12-15 trading opportunities a year. If you map out and link gold's regular turning points, and then purchase calls at each bottom and puts at each top, this is the only profitable way to play the movements in gold.
Now, what is the reason that I'm bringing this up in today's report?
Simple.
Not a week later, I started to see a series of news stories hit the mainstream media speaking about the apparent “mystery” of gold price movements.
For example, a headline posted today on CMSMarketWatch reads, “Gold -- a victim of its own success?” The editorial explains how gold's historical role as a safe haven that hedges your portfolio against losses in times of financial crisis and or political uncertainty no longer seems to work.
Gold Trading: A Safe Haven?
Jon Nadler, an analyst at Kitco Bullion Dealers, is quoted as saying “the gold market has thus far been frustratingly unable to summon its historical safe-haven attributes.”
There are many opinions as to why this is happening. Some say that gold has evolved so much, investors now are faced with numerous choices on how to own the precious metal -- and this leads to pricing instability. Others take the easy way out and call it “profit taking.” And others sway the gold pricing figures to support the historical argument that gold is, indeed, a safe haven.
Here's what I know to be true: Lately, gold has traded in tandem with equities. This was most apparent on February 27, when U.S. stocks saw their biggest one-day drop in more than five years. That same day, gold prices fell -- and kept falling for a total of five sessions. As of Thursday, gold prices had fallen nine out of the last 13 trading days.
Safe haven?
Not on my watch!
The conclusion?
Play the trends -- as indicated by the WaveStrength charts.
And forget all the extraneous “noise” that comes alongside everything else!
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Related Resources
Gold Trading: Gold - a victim of its own success. - MarketWatch.com
Dow vs. Gold Stocks: Comparison of the Dow and the XAU. - Yahoo!Finance