Why does everyone want to trade gold? Because it is shiny, blingy, and a ‘safe-haven’? Or, maybe it’s because the talking heads LOVE to get excited about gold as a hedge against the dollar or the promise it will protect you in the future when America crumbles (you’ll need a lot more than a stack of gold if that happens). Only a few weeks ago, everyone was talking about the boom in gold prices -” gold could reach 2000 soon”, “best place to invest”, etc. etc. Uhhh. Maybe, but I’m a trader and not interested in the what ifs.
Since the beginning of the year, gold has moved down with the market. GLD is off 17% since its high reached back in mid December. What happened to the ‘safe’ trade in gold? Geeze. Instead of listening to all the hype and hoopla, I find it easier to trade gold (and most precious metals) by looking at the individual company charts and understanding what the dollar is doing. Currently, precious metal stock prices are very correlated to the move in the overall stock market and inversely related to the dollar. With the dollar moving up against the Euro right now, gold is plummeting. However, any signs that the dollar/euro trend is topping out or reversing could push gold back up for a nice run.
It is important, as with every investment, to understand why you’re buying it. If you think gold will protect you in the future and it’s headed to 2000, then the trade is simple – buy and hold.. becomes an investment. For me, however, I’m interested in today – where is the buying interest? Where are the best short-term trading opportunities that I can book to cash quickly? I can’t see into the future and I’m more likely to be successful making money by looking right in front of me instead of through a telescope.
So, gold or no gold in my portfolio?
As a short term trader, I’m looking for technical setups and gold news. Commodity prices are significantly affected by geopolitical activity and the strength of currencies – in particular, the dollar. So, let’s look at the gold picture from two angles – that’s all I’ll need to setup my ‘golden’ trading strategy for the week.
Angle 1) News and the dollar. With Greece and Europe freaking out about their debts, the Euro is tanking to the dollar. With this, money has been moving back into the dollar and away from the ‘safety’ of gold. Let’s watch the news out of Europe and keep an eye on the dollar/euro. If we see some stability or hopeful European economic news, you’ll likely see a pullback in the dollar, thus giving some fuel to drive up gold plays. BTW – I could be totally wrong, but this is what I’m looking for. Summary – watching for topping and/or reversal of dollar this week.
Angle 2) The technicals. After quite a fall on Thursday, gold stocks rallied Friday on strong volume.. hmm. looks like folks think that gold might be a bargain now. OK. Maybe so. I ran some screens this morning and found that, to no surprise, most gold stocks have similar charts. However, there is a subset of this group that has one thing in common that I find particularly interesting as a trader – they are holding SMA200 support on the daily. I often look for similar support indicators across a sector as a swing entry (stop just under). Check em out: GRS, HL, IAG, GSS, FCX (nice to see this one hold), FRG, EGO. There are others. You’ll also notice when you dig through the gold charts that many are just UNDER SMA200 and a breakout through could offer a nice play.
So what gold stocks interest me and why this week?
NXG is currently testing horizontal resistance and SMA200. If gold moves, this gets on my swing list over 2.60.
GRS – Held SMA200 nicely Friday. Another swing possibility.
This is only a few, but I like them for their volume and significant pullback. If gold recovers next week, there is a lot of space to the upside for these stocks – keep an eye on them and set your stops. There is nothing wrong with getting out of a trade that fails. Holding a failed trade is where the pain comes in.
Have a great week.