Gold Futures Could Break Out -- Here's the Trading Strategy You Should Consider

Gold futures are trading higher Thursday in the wake of Wednesday's Federal Reserve policy meeting on Wednesday. A breakout higher is likely, but volatility has been tremendous recently. Because of this, investors should consider an options trade instead of trading the futures outright

An attractive trade right now is a short-term vertical call option spread. I like looking for an option combo that provides me with a risk-reward ratio of 1-to-3 or better. I recommend consulting with a commodity broker and discussing the different prices, strategies and risks associated with specific trade recommendations and progress from there.

Gold futures have a chance to break upside toward the $1,300-an-ounce level. At the same time, a failure to do so can trigger what is known as a "weak long liquidation" and push this market right back toward $1,200.

Note our resistance lines on the daily chart below. (We like using Heikin-Ashi charts, which help smooth out price action.)

On a fundamental note, gold is inversely following the dollar index and came out of Wednesday's Federal Open Market Committee meeting with minor scars and maintaining the bullish bias.

From a technical standpoint, a break above $1,265 on the June future contract can help this market make a run toward $1,300 for the first time since January 2015. 

Plan your trade, trade your plan!

This article is commentary by an independent contributor. At the time of publication, the author held no positions in gold futures. Trading commodity futures and options involves substantial risk of loss. Past performance is not necessarily indicative of future results.

 

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