Gold trading in the US has been muted the last several days heading into the Fed interest rate decision tomorrow (Weds 6/13). No great surprise given the fundamental relationship between interest rates and gold, which we’ll get to in a minute. First a look at the chart of GLD, our gold trading proxy.
Several very interesting things about this chart. First, the classic “topping out” pattern 5 days ago. Candlestick pattern fanatics will recognize that in an instant. For the rest of us it’s a pop-and-drop, which the old guys in the now-defunct trading pits will tell you to stay away from. And with good reason, as the last 4 days show on the chart. Gold has basically dropped in the US the last 4 days; the green coloring the last 2 days is because the close of the day was higher than the open of the day, not necessarily higher than the previous day’s close.
And, perhaps more telling of the current situation, volume has dropped each of the last four days. No one wants to be left holding a hot potato should gold drop following the Fed announcement!
What we’re interested in is Can we make money off these things? The answer is a qualified Yes.
If you are willing to take on a high-risk trade, or think you can reduce the risk, you could have shorted gold the day after the topping pattern on the chart. It’s a bit of a high-risk trade though, with a good chance you’d be shaken out before the trade finally played out. This is why the older guys – as I like to think of my father’s generation – preferred to wait these out, looking for easier trades. Meaning easier on their blood pressure I suspect.