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I’ve written a few articles over the past few months detailing my bearish bias to gold.  It’s not that I want to beat up on the gold bugs out there, but gold has failed this year to hold onto any meaningful gains despite unprecedented QE on a global basis.  Failing to acknowledge markets that do not rally despite seemingly bullish fundamentals is a sure recipe to “marrying” a long position that could end up being a portfolio buster before cutting it loose.  In my opinion, gold will eventually trade substantially higher than current levels.  However, we will need to start seeing some inflationary pressures in the economy before that happens.  Until then, trade what you see – not what you think.

Moving on from the fundamental picture in gold – take a look at the daily chart of the Dec Gold futures contract:

This chart is showing a perfect storm coming together for those technicians out there.  Not only has the uptrend support been violated over the past few sessions, but we have a textbook “head and shoulders” formation developing as well.  Currently trading near the neckline of this formation, if the pattern completes we should see gold test the lows from this summer in the $1180/oz range.  From a purely technical standpoint, the picture doesn’t get much more bearish than this.  With Fed minutes scheduled for release later today, I would suggest an option play of some sort versus an outright futures position as to control the risk on what could be a volatile afternoon of trading.

Questions or comments?   Need help setting up the trade?  Contact Trent directly at 312-756-0932 or at twagner@tradewithfox.com.  For a free trial of Trent’s newsletter, The Weekly Options Trading Report, click on the link below and select “Options Newsletter” from the dropdown box in the subject line.

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*Past performance is not indicative of future performance.  Trading futures and options involves substantial risk of loss and is not suitable for all investors.

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