Short sellers have battered this market, and there hasn't even been any meaningful profit taking (intermediate retracement), which means the vast majority of the short sellers are still in this market. In fact, if you look at the latest CFTC Gold -0.50% report released 12OCT (which monitors all the contracts on the buy and sell side being processed at the exchange), the market is now NET short 38,000 contracts which is the 1st NET short position in Gold -0.50% for 18 years. You can be sure that after the price spike on Thursday that institutional players, heavily short in gold -0.50% , are nervous and watching for the next move... if Gold -0.50% continues to push on higher, short sellers will begin to compete among each other to get out and in turn will drive the price up sharply higher.
What caused the big spike in the Gold -0.50% price on Thursday? Driven by fear and risk off sentiment in the global market place. With the S&P 0.79% dropping sharply investors panicked and moved their money out of equities and in to Safe Havens like gold -0.50% and bonds. There's so much value here in gold -0.50% as the price is so cheap relative to other asset classes. If risk off sentiment continues gold -0.50% will continue to attract buyers leaving more high risk assets.
Technicals and risk
After the decline the market started a congestion phase with the high at $1,214 and the market broke out and closed above this area on Thursday, also breaking above the long term channel line. $1,215 is the entry but for the bigger picture anywhere around here is good. Aggressive stoploss would be 10 points offering 5-6 to 1 returns and a conservative stoploss under the $1200 handle like $1,195 would yield 3-4 to 1 return. There is of course the possibility the trade doesnt work and the market continues lower.
I like to take profits along the way T1= 1240, T2= 1260 T3= 1290 and highlighted in blue boxes are the horizontal resistance areas i expect price to react to. Also pay attention to the 200DMA which could offer some resistance. And pay attention to market sentiment if the trade works.
Taken 1st partial in gold and tightened stop loss trade is risk free and net positive.
Gold popping today due to risk off sentiment