Panic Buying: Outlook For December Gold Futures
The recent struggles of the U.S. indices have illustrated the importance of market correlations. While the DJIA and S&P 500 crashed on Wednesday/Thursday, December gold futures went through the roof. Why? The answer is simple ― investors panicked and fled to the ultimate safe haven, gold.
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As you can see on the chart above, pricing broke out hard to the bull beginning late Wednesday. In fact, earlier that day, I outlined a developing pennant formation in bullion. The pennant was short-lived, as prices exploded north as U.S. equities plummeted. Bids continued to hit the bullion market as Asian stocks tanked during the Wednesday overnight, followed by a 500+ point Thursday drop in the DJIA.
Bottom Line: In short, when the sky is falling, gold looks good. So, are the gains in December gold futures permanent or temporary?
The year-long trend for 2018 is bearish. Daily technicals are certainly bullish due to the panic-driven trading of the last 72 hours. Conventional wisdom says that Thursday’s huge range in December gold will be filled in at some point. But for now, a nice scalp from a 38% retracement may not be a bad trade to take.
Until the closing bell, I will have buy orders queued up from just above Thursday’s 38% retracement at 1216.6. Using an initial stop at 1215.4, this trade produces a fast 8-10 ticks using a sub-1:1 risk vs reward plan. At some point, December gold is likely to fill in this week’s breakout. If we see exhaustion near the 1225.0 level, then a position short may come into play for next Monday or Tuesday.
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