While the gold market yesterday showed indecision and appeared to be poised to remain within the recent consolidation pattern, prices yesterday afternoon clawed higher and approached what would have been an 11-day upside breakout. However, despite news of a modest expansion of the virus count inside and outside of China, the gold market doesn't appear to be overly sensitive to that situation this morning.
However, it is possible that an upside breakout in the dollar to the highest level since early December is beginning to distract traders away from the potential uncertainty flowing from the virus and that should be concerning for the bulls.
Yesterday gold ETFs saw an inflow of 156,276 ounces bringing net purchases this year up to 526,487 ounces. Furthermore, a Japanese concern overnight indicated gold funds saw the biggest weekly inflows in 17 weeks.
In retrospect it seemed like the virus situation was prodding bulls back into long positions yesterday afternoon and if that situation is seen again today and a fresh 10 day high is forged on the charts that could spark a modest upside extension from classic short covering (stop loss) buying. Logically it would appear to be a good assumption to suspect that a certain amount of follow-through expansion in virus cases will be seen in the short term with the Chinese only recently becoming very aggressive with restrictions on travel on public transportation systems.
Pushed into the market, we favor the bull track with the early January washout likely tempering the overbought condition from the January spike high. In other words, seeing gold correct by $75 and then forge 11 days of sideways consolidation should leave the market in a better technical position to rally.
However, traders should continue to "expect" an expansion of two-sided action with potentially expansive trading ranges and that in turn suggests the utilization of risk controlling strategies. For instance, traders looking to the long side could purchase April gold futures and purchase one or 2 puts as protection. Other strategies include the purchase of bull call spreads and or call options situated above the $1,610 strike price.
We invite you to subscribe to receive our more comprehensive market update delivered directly to your inbox.
Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
