Long Term Gold Investors: Ignore The Noise Of The Current Range
By Kira Brecht, Kitco.com
Friday November 01, 2013 13:34
The gold market is dynamic and complex. There are many different types of players including central banks, physical gold buyers from India and China, institutional investors, momentum traders, hedge funds and "mom and pop" who just like to have a little "insurance" in their home safe.
It is the interplay and constant back and forth between these groups that creates movement and trends. In the short term—for the near term technical trend —it tends to be the active day traders and momentum players who have the most impact on the short-term price outlook.
For the longer-term trend, it is the bigger picture players and buyers —including central banks, physical buyers from the East, and savvy retail players who are building up a longer-term portfolio of alternative hard assets, who have the most influence.
In the near term, on a multi-month basis, Comex December gold futures are locked within a very large range between $1,500 per ounce and about $1,180 an ounce. See Figure 1 below. Within that large range there can be multi-day and multi-week trends—these are tradable opportunities for the swing trading crowd. Action in the U.S. dollar is a key driver right now for the short-term trading crowd.
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For range players, strong nearby support lies at the $1,250 zone. If that breaks, look for the bears to gun for a retest of the bottom of the range around $1,180. On the flip side. Near term resistance lies at the $1,360 area. A sustained rally through that zone would open the door for a run back to $1,434, initially.
What does this all mean for longer-term investors? All this "choppy" action within that range is simply noise. Really, pretty meaningless on a longer-term basis.
For longer-term players, who seek to buy and hold gold for the long term, the major floor to monitor in the months ahead lies at the $1,180 zone. That has been established as a "value" area for gold on a longer-term basis, for now, by physical buyers.
Figure 2 below, shows that zone roughly coincides with major 61.8% Fibonacci retracement support (drawn off the 2008 low to the all-time high in gold). Longer-term technical players are watching that level around $1,150.
There's a lot coming down the pipeline for gold, including the start of U.S. Federal Reserve monetary "tapering" or a reduction in its monthly bond asset purchases, at some point later this year or in 2014. Tapering is coming and it will be perceived as negative for gold; it already is.
But, there's more to the gold market than just historically accommodative global monetary policy. It's an insurance policy. It's an alternative asset. It's a diversification strategy. Gold may have seen its cyclical high for now, but there is an argument to be made that the secular bull market in gold is far from over.
There are savvy market participants who are looking for a hedge against the "next crisis." When it comes to financial markets and business cycles, there is always another crisis. Most developed and industrialized economies still maintain massive structural deficits. There are deficits, debt issues and global economic imbalances that will come to a head in the years ahead.
Long-term gold traders know the key levels to watch. Prepare your investment plan ahead of time. What will you do if gold falls to lower levels? Take the time now during the meaningless "noise" to build and prepare your longer-term investment plan.
Kira Brecht is managing editor at TraderPlanet.
It is the interplay and constant back and forth between these groups that creates movement and trends. In the short term—for the near term technical trend —it tends to be the active day traders and momentum players who have the most impact on the short-term price outlook.
For the longer-term trend, it is the bigger picture players and buyers —including central banks, physical buyers from the East, and savvy retail players who are building up a longer-term portfolio of alternative hard assets, who have the most influence.
In the near term, on a multi-month basis, Comex December gold futures are locked within a very large range between $1,500 per ounce and about $1,180 an ounce. See Figure 1 below. Within that large range there can be multi-day and multi-week trends—these are tradable opportunities for the swing trading crowd. Action in the U.S. dollar is a key driver right now for the short-term trading crowd.
.
.
For range players, strong nearby support lies at the $1,250 zone. If that breaks, look for the bears to gun for a retest of the bottom of the range around $1,180. On the flip side. Near term resistance lies at the $1,360 area. A sustained rally through that zone would open the door for a run back to $1,434, initially.
What does this all mean for longer-term investors? All this "choppy" action within that range is simply noise. Really, pretty meaningless on a longer-term basis.
For longer-term players, who seek to buy and hold gold for the long term, the major floor to monitor in the months ahead lies at the $1,180 zone. That has been established as a "value" area for gold on a longer-term basis, for now, by physical buyers.
Figure 2 below, shows that zone roughly coincides with major 61.8% Fibonacci retracement support (drawn off the 2008 low to the all-time high in gold). Longer-term technical players are watching that level around $1,150.
There's a lot coming down the pipeline for gold, including the start of U.S. Federal Reserve monetary "tapering" or a reduction in its monthly bond asset purchases, at some point later this year or in 2014. Tapering is coming and it will be perceived as negative for gold; it already is.
But, there's more to the gold market than just historically accommodative global monetary policy. It's an insurance policy. It's an alternative asset. It's a diversification strategy. Gold may have seen its cyclical high for now, but there is an argument to be made that the secular bull market in gold is far from over.
There are savvy market participants who are looking for a hedge against the "next crisis." When it comes to financial markets and business cycles, there is always another crisis. Most developed and industrialized economies still maintain massive structural deficits. There are deficits, debt issues and global economic imbalances that will come to a head in the years ahead.
Long-term gold traders know the key levels to watch. Prepare your investment plan ahead of time. What will you do if gold falls to lower levels? Take the time now during the meaningless "noise" to build and prepare your longer-term investment plan.
Kira Brecht is managing editor at TraderPlanet.
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