(Kitco News) - Gold remains near the middle of its range from the past year, making it a tricky call for technically oriented traders looking to establish positions, says Dave Toth, director of technical-chart research at RJ O’Brien & Associates.
Nevertheless, he sees potential for short-term scalpers – who quickly get in and out of the market – to be bullish as long as prices on the Comex division of the New York Mercantile Exchange are above the area around $1,280 an ounce. But for the longer term, he sees gold as still in a corrective bear market as long as gold remains below the Aug. 8 high of $1,324.30 an ounce.
The market has tended to “whipsaw” and be volatile over the last 1 ½ weeks, and in fact over the past five months, Toth noted.
“It’s the nature of the beast and it’s not a surprise,” he said. “Attention to one’s personal risk profile is key under such circumstances. Short-term traders have to have tighter short-term stops. Longer-term traders have to have wider stops….”
Stops are pre-placed buy and sell orders. They are often used by futures traders when they are already in a position to either exit a losing trade or capture a profit on a winner.
“From a very long-term perspective and on the heels of the 2012-2013 collapse, I still think the past year’s range is bear-market corrective,” Toth said. As a result, he sees potential for prices to eventually fall back below $1,179 an ounce.
Nevertheless, from a shorter-term term perspective, Thursday’s recovery above Tuesday’s $1,291.90 high technically breaks the mid-August decline, Toth said. The most-active December contract has been as high as $1,297.60 so far Thursday.
“For short-term scalpers, I think the trend is up,” he said. “I think it’s OK to be cautiously bullish, with a stop at $1,280.80.”
This is just below Wednesday’s corrective low of $1,280.90 an ounce.
“The longer-term trend is down as long as the Aug. 8 high of $1,324.30 remains intact as a resistance cap,” Toth said. “So if you’re a longer-term player, I think you want to I think you want to approach this recovery attempt as a corrective selling opportunity, but you’re assuming a risks to $1,324.30.”
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Toth added that a couple of contrarian sentiment indicators reinforce his view that gold remains vulnerable to more declines in the longer term.
“The (Market Vane) bullish consensus is still relatively high at 51%,” he said. “The high over the past year has been 55% and 53%, and each of those conditions (led to) a sharper intra-range decline. Also, our (RJ O’Brien) MRT bullish sentiment index is still relatively frothy at 85% and that too is near the upper boundary of the past year’s range, and in each of those cases, the market has sold off.”
By Allen Sykora of Kitco News; asykora@kitco.com
