Don't Ignore Gold's Growing Momentum, Watch For A Break Of $1,270 - iiTrader

Neils Christensen  

Tuesday April 04, 2017 12:38

(Kitco News) - While investors should not chase a hot market, there is a lot of momentum building in the gold market that is difficult to ignore says one Chicago trader.

In a phone interview with Kitco News, Bill Baruch, senior market strategist at iiTrader, said that gold has pushed into key resistance territory for the third time in a month and he thinks it is only a matter of time before prices break above $1,270 an ounce.

Although gold is down from its session highs, the market is still holding onto strong gains; June Comex gold futures last trading at $1,258.40 an ounce, up 0.35% on the day.

Not only does gold continue to test near-term resistance but Baruch added that corrections have been shallow and short-lived, another positive sign for higher prices.

“Right now, the market feels like it wants to go higher and I don’t think that can be ignored,” he said. “If prices get above $1,270 then I think $1,300 would be a conservative estimate.”

While geopolitical uncertainty and lackluster momentum in the U.S. dollar are helping the yellow metal, Baruch said he thinks a bigger factor is the equity market.

“Equity markets are beginning to show a slight bit of vulnerability,” he said in a note to clients Tuesday. “With even the slightest bit of weakness in the equity market, investors quickly turned to safe haven assets such as Gold and Treasuries.”

While there is strong bullish potential for gold, Baruch added that there are still some hazards that investors need to be aware of to properly manage their position.

“If we see a strong ISM non-manufacturing number tomorrow or strong employment on Friday then prices could fall to $1,215 an ounce easily,” he said.

If investors want to jump into the gold market in anticipation of a breakout, Baruch said that they are recommending hedge the trade by selling a 1300 June call option and buy short-term 1240 put options.

For more conservative investors, Baruch said that they could place buy orders above $1,270 and simply play the breakout rally. He added that investors should also look at placing a stop around $1,240 as that is a major support level and a push below could lead to an ultimate test of support at $1,200 an ounce.

“If prices go below $1,240, I would be watching the $1,215 level but I would wait and see if it gives way to $1,200.”