Morning Futures Roundup
Did Gold Get Too Overheated?
Gold traders have been accustomed to wild ranges and high volatility, but the last few sessions have had wild swings that even the most seasoned traders have been left scratching their heads. Friday’s sharp sell-off put an end to the sharp upswing in prices of the past few weeks, if only temporarily. The question now becomes - is this a trend reversal or simply a correction? Fundamental factors have been working in the precious metals’ favor, as government spending continues at an unsustainable rate and interest rates remain low.
The meteoric rise in prices, however, may be making traders reluctant to buy at current levels and has given holders of long positions the opportunity to take profits. As prices correct, traders may wish to see how prices behave at current levels. If prices are able to level off, traders may view this as a buying opportunity, making the current sell-off nothing more than a bump in the road. If prices begin to slip, Gold may come under extreme pressure if long-holders resolve is shaken. Gold may find itself a victim of its own success if traders view the rise in prices as too much, too soon.
Turning to the chart, February Gold showed a parabolic rise in prices during the month of November and into the beginning of December. Thursday’s spinning top candlestick was a signal of at least a near-term correction. The sharp drop in prices on Friday offered validation of at least a short-term correction, possibly a large one. Monday’s price action indicated much indecision among traders. It appears that the overbought conditions may have added to the selling pressure on Friday, but the RSI has come back down to neutral territory. The momentum indicator is nearing the zero line. If the indicator falls below the zero line, prices could see further downside pressure.
CLICK HERE FOR THE FULL-SIZED CHART
This article is provided for informational purposes only. No statementin this article should be construed as a recommendation to buy or sella security or to provide investment advice. The content provided hasbeen obtained from sources deemed reliable but is not guaranteed as toaccuracy and completeness. optionsXpress makes every effort to providetimely information to its recipients but cannot guarantee specificdelivery times due to factors beyond our control.
Futures involve substantial risk and are not appropriate for all investors. Please read the "Disclosure Statement for Futures and Options" prior to investing in futures or options.
For investments using a straddle or strangle options strategy thepotential loss is unlimited. Multi-leg option strategies are subject tomultiple commissions. Profits may be eroded by the commission expendedto open and close the positions and other risks apply.
View Mike Zarembski's post archive >