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Home ANALYSIS

Gold tumbles, but finds support targets and bounces

A.R Chowdhury by A.R Chowdhury
March 10, 2022
Reading Time: 4 mins read
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Gold tumbles, but finds support targets and bounces

Gold

Gold moves back toward the $2000 level

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Gold

Gold is the most widely traded and important commodity. Prized for its historical importance and used for trading an exchange of goods, the gold market today is estimated at nearly $2.4 trillion.The value of gold fluctuates constantly, as it trades on public exchanges where it has a price that is determined by supply and demand. Gold has historically had tremendous significance and even today is extremely sought after. Gold has been used as a currency as it doesn’t corrode, and the material allows for some absorption of light creating a yellow glow, which lends the name yellow metal.Ultimately, institutional and retail investors buy and sell gold contracts or physical gold, thus creating the demand and supply flow.This can be pure speculation, to acquire or distribute physical gold, or as a hedge for commercial application. For day-traders, the purpose of trading gold is to profit from its daily price movements.How to Trade GoldDay-trading gold is speculating on its short-term price movements. Of note, physical gold is not actually handled or taken possession of, rather the transactions take place electronically and only profits or losses are reflected in the trading account.There are a number of ways to ultimately trade gold. Retail brokers typically offer exposure to gold through contracts-for-difference (CFDs).Beyond retail brokers, the main way to trade gold is via a futures contract. This represents an agreement to buy or sell something, i.e. gold at a future date. Buying a gold futures contract doesn’t mean you actually have to take possession of the physical commodity.Day traders close out all contracts (trades) each day and make a profit based on the difference between the price they bought the contract and the price they sold it at. However, on a futures exchange, gold moves in $0.10 increments only. This increment is known as a tick. It is the smallest movement a futures contract can make. If you buy or sell a futures contract, how many ticks the price moves away from your entry price determines your profit or loss.

Gold is the most widely traded and important commodity. Prized for its historical importance and used for trading an exchange of goods, the gold market today is estimated at nearly $2.4 trillion.The value of gold fluctuates constantly, as it trades on public exchanges where it has a price that is determined by supply and demand. Gold has historically had tremendous significance and even today is extremely sought after. Gold has been used as a currency as it doesn’t corrode, and the material allows for some absorption of light creating a yellow glow, which lends the name yellow metal.Ultimately, institutional and retail investors buy and sell gold contracts or physical gold, thus creating the demand and supply flow.This can be pure speculation, to acquire or distribute physical gold, or as a hedge for commercial application. For day-traders, the purpose of trading gold is to profit from its daily price movements.How to Trade GoldDay-trading gold is speculating on its short-term price movements. Of note, physical gold is not actually handled or taken possession of, rather the transactions take place electronically and only profits or losses are reflected in the trading account.There are a number of ways to ultimately trade gold. Retail brokers typically offer exposure to gold through contracts-for-difference (CFDs).Beyond retail brokers, the main way to trade gold is via a futures contract. This represents an agreement to buy or sell something, i.e. gold at a future date. Buying a gold futures contract doesn’t mean you actually have to take possession of the physical commodity.Day traders close out all contracts (trades) each day and make a profit based on the difference between the price they bought the contract and the price they sold it at. However, on a futures exchange, gold moves in $0.10 increments only. This increment is known as a tick. It is the smallest movement a futures contract can make. If you buy or sell a futures contract, how many ticks the price moves away from your entry price determines your profit or loss.
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tumbled over $70 on the day, and in the process fell below its 100 hour moving average at $1987.28, and moved into a swing area between $1974.40 and $1980.70. The pair also approached the 50% midpoint of the move up from the March 24 low at $1974.20.

However support buyers came in against the 50% level, and the low of the swing area (the low price reached $1976.30) and have since pushed the price back up toward the $2000 level. The current price is trading at $1995.70 as I type.

The inability to push below the support target levels, and holding the 50% midpoint, could give the buyers a more “buy the dip” mentality. Although stocks are higher, and crude oil remains lower, the reports from Ukraine are that shelling continues despite a supposed cease-fire so that civilians could leave through the corridors.

If the buyers start to take more control after the fall, watch the 100 hour moving average at 1987.29 for close support. Getting back above $1996.91 (38.2% retracement) and the natural resistance at $2000 would give buyers more upside momentum once again. Above that, and the $2020.98 level would be targeted (see blue numbered circles).

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A.R Chowdhury

A.R Chowdhury

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