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Day 1: our gold trade

Our potential strategy: sell spot gold at $1335, with potential stop loss at $1360, and a limit at $1277.

Technically gold is in a downtrend, with the metal making a series of lower highs and lows from the August 28 high of $1433. Daily oscillators are highlighting that the downtrend is strong, although stochastics are showing signs it is oversold at present.

The daily MACD is firmly below zero, suggesting that rallies could be sold by traders and thus bounces should be contained within the downtrend.

We feel placing stops just above the 38.2% retracement of the $1433 to $1305 sell-off at $1360 could be prudent.

Fundamentally, news that Larry Summers is stepping down from the race to the Fed chairman role is positive for gold as it firmly puts Janet Yellen as favourite for the Fed job. Janet Yellen is a dove and therefore happy to keep policy loose and is closely aligned with Ben Bernanke’s views. We have seen gold spike in Asian trade today, however we wouldn’t rule out further upside in Europe, thus we feel traders could look to sell limits at $1335 (the 23.6% retracement of the $1433 to $1305 sell-off).

This week’s FOMC meeting is also a key kicker. As things stand, the market has priced in the prospect that the Fed announces that it will lower the pace of bond buying by $10 billion a month.  There is also the prospect that the Fed alters its forward guidance with regards to increasing interest rates, with it looking to change the thresholds for which the Fed would look to move. In theory this would be gold positive, although this is not a consensus view.

Overall we want to align ourselves with the trend and look for rallies as potential selling opportunities.

See gold chart below.

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