Spot Gold Is Ready To Jump - But Which Way?

By: Murray Nickel

August 1st, 2007

I recently wrote to my trading signal clients that I didn't like the action that was unfolding with spot Gold (XAUUSD). On our open long trade I increased the trailing stop to lock in gains of +1.3% (the other half of this trade was closed for a +3.8% gain).

Here I'll explain why I'm a bit nervous and outline a trading strategy for managing risk at this time.

Four trading days ago Gold posted a big range reversal day that opened near the high and closed near the low.

There have been three more of these reversal days during the past year, and in each case XAUUSD made further fast and significant declines within four trading days. Of course these reversal days don't always deliver further rapid declines, and if spot Gold pushes above the high of the reversal day at 677, then that is a very bullish sign.

The spot Gold market is currently trading near 667.0. I have exits above and below, at 669.0 and 656.81. Both exits will deliver profit, but the 669.0 exit I've just added is the difference between +3.2% and +1.3% gains, which is worth having if available. On an hourly chart of XAUUSD it looks like it should push to at least 669, but no market comes with guarantees included.

One of those exits will get hit eventually. Then what should we do?

* If XAUUSD pushes beyond 677, it should go all the way to $750 or more. So I'm placing a conditional buy-at-a-stop entry at 677.0. If this is triggered, the initial stop-loss is 656.81.

* If spot Gold heads south from here then I want to be short at 640.0 (sell-at-a-stop), with an initial stop-loss at 676.0. This would mean spot Gold is entering its wave 3 decline (in Elliott wave terms) and should eventually continue down to under $540.0 before any sustained rally kicks in.

* So either way, there should still be a good move to trade and the opportunity should unfold very soon - the only unknown is "which way?" If you've read my recent article on the global spread of risk aversion, you'll know that I think Gold is heading north. But the beauty of this strategy is that I don't have to be right! I don't really care what the market serves up as I can make further profits either way.

View the complete article, including a chart of spot Gold, showing the reversal days, and a link to the piece on global risk aversion, at www.TrendSensor.com/MarketBrief/

DISCLOSURE: Murray Nickel has a long position in spot Gold (XAUUSD).

Niche Article Directory: http://www.thatsmyniche.com

Murray Nickel is a mathematician, statistician, and professional trader. He offers a free trial of trading signals for global market indexes and index ETFs, spot Forex, and spot Gold. He also mentors trend traders aiming to build consistent success at trading global markets.
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