Why You Shouldn’t Have Been Blindsided by Gold and Wheat Makes Its Move

This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Thursday, December 20, 2012.

Gold bugs and other “true believers” in the precious metals futures tend to be about as stubborn (and masochistic) a group of traders as there is. They go long and are able to withstand an extreme amount of pain before throwing in the towel and pitching long positions. This characteristic often makes gold and silver futures good candidates for breakout sales. That’s certainly what we got in gold today.

Below is the daily chart for February gold futures. It had been a bad week for the gold bulls as Tuesday saw a big selloff out of a breakout setup on Monday. Tuesday’s break pushed it under the 5 Nov. low of 1674.70 and support around 1668 – it’s a major Fibonacci retracement level and the 200 day SMA is at 1668.40 today.

February Gold Futures

Yesterday was another inside day with some significant range contraction and a doji –all patterns that told us to anticipate a breakout move today. We keep an open mind as to a market’s direction out of a breakout setup but the daily trend is down.

Today’s intraday chart is below. Things looked kind of negative early morning, it was under the 20 period EMA, the EMA had a downward slope and a number of the correlated outside markets were lower (grains, sugar, and crude oil). The two downside breakout points were Wednesday’s and Tuesday’s lows, both these were broken around 7:30 AM and it has been making lower highs and lower lows since – no real sign of a bottom yet.

Gold Futures 12-20

The wheat market is another setup I’ve been talking about; the daily trend is down and it had been testing important long term support at the $8.00 level. That was finally breached this morning; this yielded an $875 / contract move to the session low. I would now look for that 800 level to be a pivot point, look to short a retracement toward it and cover shorts on a close above it.

March Wheat Futures


© Scott Hoffman

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