This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Patience Pays as Gold Prices Probably Set to Rise

NEW YORK ( TheStreet) -- Gold has been in a consolidation mode since mid-September, trading in a range from 1,760 on the low side to just under 1,800 on the high.

With all the recent interest in gold, I thought it fitting to address this market. After all, it makes sense that a lot of people would want to get involved in the yellow metal.

We are now in the midst of our third round of quantitative easing, better known as QE3. Central banks around the globe have taken an "accommodative" stance when it comes to monetary policy. Just yesterday, in fact, China pumped additional liquidity into the banking system. The European Central Bank has said it is willing to make unlimited bond purchases of member countries in trouble. We have a national debt that becomes more and more staggering by the day, a number so large that I do not personally see how it could ever be repaid without debasement of the dollar. The list goes on and on.

One can make a compelling case for gold to go considerably higher. But will it? Markets do not always act as we think they should. This is no secret. When it comes to markets and trading, my goal is to make money -- not to be "right." I think that one has to let the market lead the way, and not try to be calling tops or bottoms. Leave ego out of the equation and eventually the market will tip its hand. I believe that someday soon that is precisely what gold will do.

So far, the strong band of resistance from 1,790-1,800 has kept this market in check. What makes this test a little more interesting is how the market has behaved here as it has stalled out.

On previous tests of this area -- going back to November and February/March of 2011 -- the market sold off a good degree following these failed tests. As a matter of fact, the market sold off both times to the tune of over a $200 decline. This time is different -- so far. And although the market has pulled back, the pullbacks continue to be shallow in nature. The market is building a cluster of closes just under this resistance area.

In effect, the market is setting the stage for either a powerful move higher through resistance, a move I think could run a few hundred dollars to the upside, or the rally is coming to an end, in which case it is only a matter of time before this market sees a pretty nasty drop once everyone starts to liquidate. The fact is we just don't know right now. That makes sitting on the sidelines a great choice.

I still favor the upside because the longer-term trend is up. Volatility in gold options has come in from recent levels, and for those who feel we are going to see a big run either way in this market, buying options seems like a much better idea than it did a few weeks ago. Patience is key. Wait out the market.

If you are looking for long options positions, make sure you are using options that give you enough time to be right (at least 60 days until expiration). There are a ton of different ways to try to play this market. As always, feel free to contact me for details on potential trade setups. And remember, patience is key!

Note that today is Oct. 9, and trade information is based on the most recent data.

Please note: Futures and options trading is inherently risky and isn't suitable for all investors. Past performance isn't indicative of future results. Stop-loss orders meant to limit losses may not be effective because market conditions may make it impossible to execute such orders.

Matt Zeman is a trader at Kingsview Financial. He began his trading career as a runner in the grain pits at the Chicago Board of Trade before becoming an arbitrage clerk. Eventually he started trading equity options and stocks. Matt now is a full-time futures broker. He has been a frequent guest on CNBC, Fox and Bloomberg, and provides his views on the stock, bond and futures markets for financial media including Dow Jones, the L.A. Times and The Associated Press. Matt is a member of the Chicago Board of Trade, and carries series 3, 7 and 66 licenses.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters