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Beware Of Thin, Volatile Holiday Conditions
Gold prices slipped lower in trading Monday, amid weakness in the crude oil market following three sessions of gains in the oil contract. In the short-term, gold prices have fallen victim to a choppy, range trade environment, with well-defined near-term support and resistance points. Thin and illiquid trading conditions during the holiday week leave gold vulnerable to erratic or whipsaw type of trading action.
The near-term range: Since mid-November, Comex February gold futures trade has turned neutral and consolidative between strong support at the $1,045.40-$1,046.80 floor and resistance at the $1,088.30 ceiling. Action within that range is neutral and trendless.
The intermediate term trend: The multi-month trend pattern is negative for gold. However, it would take a strong and sustained sell-off below $1,045 to confirm a downside breakout and to open the door to a fresh selling wave.
On the upside: Traders can monitor action around resistance at $1,088.30, the Dec. 4 daily high. A strong and sustained close is needed above that ceiling to confirm a minor bottom on the daily gold chart. If an upside breakout were achieved above $1,088.30 on a weekly closing basis it would turn the very short-term trend bias to bullish. Next bullish objective lies at $1,098.
Related market action: watch crude oil. There is a positive correlation between gold and oil prices. Since hitting a low at $36.48 per barrel on Dec. 21, the March Nymex crude oil contract climbed for three sessions in a row to hit a high at $39.24 per barrel on Dec. 24. Early action on Monday saw crude oil slip lower again. Resistance lies at $40.18 and if crude oil can hook above the $40 region it would be a bullish indicator for gold.
Thin holiday trading week: Last but not least, many traders are out on holiday and away from trading screens. The illiquid trading conditions leave gold vulnerable to potential whipsaw and volatile moves higher or lower. Nimble and short-term gold traders need to identify trading spots carefully and watch markets closely. Sometimes the best trade is no trade at all.
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