This morning we saw a spike in the price of Gold minutes after the disappointing "new homes" housing numbers were released. That move was a knee jerk reaction from traders sending the US Dollar down and Gold & oil - up. The trader theory here is that the Fed wont pursue any scaled down bond buying in September as most anticipate.
I entered into a "short" position Via DZZ on July 22nd. That commentary can be seen here .
The recent price action lately along with the action today have placed the price of the metal now squarely above a recent downtrend line of 1350. A trendline that I believed would be first resistance.
I will quote my commentary from July 22nd here to once again state my position on this trade.
I will use this as a "short to intermediate" term trade and will employ an "exit" strategy with a 'mental" stop of $5.50 on th DZZ which should equate to a move to 1450 or so for Gold.
That would equate to approx. a 15% downside risk to the trade or a 7% upward move on Gold to 1450.
As of now I believe the 1450 - 1500 range on Gold will provide major resistance . If in fact the metal does overtake the 1500 level, it would appear the bull argument that this was a mere correction is correct and my assertion of continued weakness and bear case is wrong.
DZZ currently stands at $5.85 , so I will continue to monitor with a "mental Stop " around $5.50..
The fundamentals for a stronger gold price are in place and working against this position , especially if we are in fact not going to see any fed action on QE in Sept. With this backdrop it will be interesting to see if Gold can indeed break its downtrend. (down 17% YTD) The next hurdle for the metal to overtake is the 1420-1425 range..
Disclosure: I am long DZZ.
Additional disclosure: I am short Gold by having a long position in DZZ