Gold futures are edging lower on Wednesday as prices continued to straddle the all-important $1795.00 to $1800.00 area. If you don’t know what that means then read yesterday’s article that explains why continually testing this area means prices are balanced and that traders don’t know any more about the direction of future short-term moves by the Federal Reserve than they did nearly three-months ago in June. Basically, this area is the balance zone that will determine the next direction for the precious metal.
At 14:16 GMT, December Comex gold is trading $1790.70, down $17.80 or -0.98%.
Today, the headlines will tell you that the stronger U.S. Dollar is weighing on demand for dollar-denominated gold. That may be true to some extent. Headlines will also tell us that rising Treasury yields are also weighing on gold prices. This is because gold doesn’t pay you to hold it so getting 0.25% at your local U.S. bank is better than getting 0% just to hold on to gold.
How to Deal with a Thinly Traded Market Ahead of a Possible Key Event
Gold market-makers have to make money every day in order to pay for the privilege to be a market-maker. So they need action. When most of the major players are sitting on the sidelines due to summer vacation or uncertainty over the timeline of the Fed’s tapering plans, or worries about what Federal Reserve Chairman Jerome Powell will say at Jackson Hole on Friday, market-makers still have to make money.
So they create a two-sided trade or maybe they allow a rogue player to drive the market in either direction hoping to lure those savvy day-traders at home with the big fancy computers and moving average trading systems into the thinly traded market. They want those guys to chase upside breakouts just so they can drive them out with downside breakouts. Perfectly legal moves, perfectly planned setups if you don’t know how to read order flow and only rely on price to trade.
Continue to look for more chop as we head into Friday’s speech by Jerome Powell and the U.S. Labor Day holiday on September 7.
We’re still looking for an upside bias to develop on a sustained move over $1800.00 and for a downside bias on a sustained move under $1795.00, but won’t trade it until volume gets back to normal.
We mentioned the September 7 date. Traditionally, the major traders return to work after the Labor Day holiday, but this year, I suspect volume won’t get back to normal until after the Fed meets on September 21-22.
Watching prices fluctuate is a nice way to spend your day, but I think you should pay closer attention to volume at this time. Particularly sustained volume spikes. They could give you a heads up on when the real traders have returned. In the meantime, keep your powder dry. But if you have to trade, be careful buying strength and selling weakness until the market moves away from $1795.00 to $1800.00.