Perpetual bullish gold traders who were getting over confident last week may have watched in horror as the precious metal went from highs near 1855.00 and finished Friday’s market action around prices not sincerely traded since the first week of January. In fact, gold fell to a low of nearly 1780.00 on Friday before reversing slightly higher. The sudden and violent price movement in gold likely caused more than surprise among speculators, who may have been betting on the wrong value direction.
Short-term traders who were targeting new highs in gold and believed mid-November values were about to be tested, may have been hit with a reaction caused by some speculators who began to sell the precious metal based on the U.S. Federal Reserve reasserting its potential ‘hawkish’ interest rate policy. However, correlating the move merely to the belief a restated position by the Fed likely being a factor may not really be correct. The lower move in gold also happened as U.S. equity indices began to show signs of regaining their footing. Incremental losses that have been produced the past few weeks slowly found support and reversed slightly higher as last week began to conclude.
Technical traders may have done well if they believed gold was overbought in the short term around the 1855.00 level last week. As February trading gets ready to start, once again the 1800.00 level appears to be an important magnet and may cause some additional fireworks via price volatility in the coming days and weeks. Nervous sentiment in the global equity markets is certainly causing gold to traverse a rather breathtaking price range. Last week’s achievement of reaching a high on the 25th of January and falling to the lowest value for the month before going into the weekend likely caused grimaces and angst for many traders.
Trading results early this week should be watched carefully by gold speculators who may find nervous conditions have not ended in the global markets. Some technical traders may believe the price action late last week was a way to ‘eliminate’ long positions by sending the market lower. Now that ‘support’ around the 1780.00 mark was flirted upon, a resumption of the bullish trend could develop which may not surprise ‘experienced’ speculators. However, the reason for the slump could also be that overbought positions fell into immense downward momentum as global risk-averse trading began to turn more optimistic while pursuing equities again.
Gold Outlook for February
Speculative price range for gold is 1743.00 to 1876.00.
There remains a vast difference between day trading gold and securing the precious metal as a long-term endeavor. Short-term volatility is not going to disappear and traders need to use risk management wisely. If the 1785.00 level gets tested and proves vulnerable the 1780.00 mark could be challenged again quickly. Gold traded at a low of nearly 1752.00 in the middle of December. While it seemed unlikely this value could be tested only a handful of days ago, the recent price action downwards in gold serves as a reminder the commodity is a volatile endeavor for short-term wagers.
If the 1800.00 level is toppled again and sees sustained price action, traders can certainly look for additional upside momentum. Technical traders may want to remain cautious and use take-profit positions to cash out bullish momentum that could potentially develop. However, if global equity indices again turn nervous and show bearish results, the price of gold could find that it again attracts speculators who like its risk-averse ‘promise’ and want to pursue higher values. But as traders found last week, gold can turn volatile quickly and realistic expectations are needed with a combination of solid risk management skills using adequate stop losses and take profit orders.
