Gold Price Futures (GC) Technical Analysis – Did the Hedge Funds Just Pass the Buck to the Small Specs?

Gold futures surged to nearly a seven year high early Monday then spent the rest of the session giving back most of those earlier gains. Most analysts are going to focus on the early rally and the reason for it, however, that’s not analysis, that’s just reporting headlines.

The problem with this type of rally is the entry for those who missed the price surge, or the re-entry from those who took profits early and missed the extension move. It’s easy to say “gold rallied because of safe-haven buying”, but that type of analysis doesn’t tell you where to get in and what risks you are facing when you do get it.

From my experience, you have to think outside the box. While most small speculators focus on the “if I buy now, how high can it go,” the professional trader looks for his exit first because he realizes that if he is right, the rally will take care of itself, but if he’s wrong, the loss can be unforgiving.

So let’s get real. Where is the exit if you’re wrong? Where is the best price zone if you want to get it? Let’s face it, most traders missed the move and now they want to get it, but is it a good decision?

Typically, professionals take the time to build a support base then exit their position by selling it to the public who will buy the headline, or their over-optimized trading signal. We may have seen that on Monday because someone jumped in on the opening to form a gap and someone bought the high, thinking the market was going higher.

At 21:00 GMT, February Comex gold is trading $1567.20, up $14.80 or +0.95%.

Daily Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed when buyers took out Friday’s high with a gap-higher opening on Monday. The main trend will change to down on a move through the last swing bottom at $1463.00.

The close below the mid-point of the day is a sign that the selling may be greater than the buying at current price levels. The close below last year’s high at $1571.70 says the same thing.

The daily/weekly gap is $1556.60 to $1562.30. Is that a buy zone? Not really. I call it an “anecdotal support area”. Unless you did extensive research on the gap, you don’t know anything about it. Is it a breakaway gap? Is it a measuring gap? It looks to me like it’s an exhaustion gap so it could be signaling the move is over.

If you want to buy the pullback into the gap then make sure you have a quick out under the bottom of the gap.

If the gap fails then the market is likely to continue to decline into an area that is attractive to buyers like the uptrending Gann angle at $1525.10.

The main range is $1453.10 to $1590.90. Its retracement zone at $1522.00 to $1505.70 is probably the best buy area since it represents value. In other words, if you couldn’t get the bottom and you don’t like it near the top then start thinking about a pullback into the 50% to 61.8% retracement zone.

Finally, you can always buy strength over $1590.90 or over the uptrending Gann angle at $1597.10. These are easy exits if wrong.

The reason why I’m talking about the buy side is because the main trend is up. All we’re looking for is a good, low risk entry in the direction of the trend.