Gold has benefited from safe-haven buying as the stock market melted down to 12-year lows, and has been one of the few investments on a bullish track this year. The April gold futures contract pressed above $1,000 an ounce on Friday, February 200, 2009, but has stalled out a bit since. The chart of April gold appears to be shaping into a bullish pennant, which could suggest an upside breakout after a period of consolidation. However, today’s price action is key. To set up for a possible upside breakout, watch for an “inside day,” that is, trading within the prior day’s highs and lows of $999 and $976. We often see these types of breakout moves, hit stops, then see profit-taking. That situation could be playing out in gold and setting up for another run to new highs.
Inside days typically suggest market consolidation, and some indecision before the next move. If you are interested in setting up a bullish position on this pullback, I recommend buying three April mini-gold contracts at $980, $970 and $960, with a stop at $949. Risk about $2,100, then look to sell on new highs.
However, if the market breaks yesterday’s low, the prior day’s low, and closes below those levels, then it’s likely the market will cycle down. Right now, the chart isn’t showing that, and I’d have to think if the stock market retests its lows, that would send gold higher. Support for the April gold contract comes in at the 21-day moving average of $930, and the 50-day moving average at $885. The April contract was last down $10.40 at $984.60.
Richard Ilczyszyn is a Senior Market Strategist with Lind Plus. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com.
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