April gold has been fairly choppy over the past few weeks, following the Iraq attack which pushed gold soaring to 7-year highs above $1600. I think the best way to trade gold right now is based off of two factors. The first, being the technical price action and analyzing how gold prices are moving in conjunction with volume. A big move up or down with rising volume behind it is always something traders should pay attention to. It doesn’t necessarily mean it’s going to continue in that direction, but it is something that adds confidence in the direction. The forever gold bulls out there are clearly watching the corona virus for the most recent bullish news to feed the market. As it appears this virus is quite contagious and is spreading fast. There are now more confirmed cases in the US with this entire situation similar to the start of the SARS virus in the early 2000’s. China is taking all precautions with over 40M people in quarantine areas now.
April gold recently broke out above $1575, with the next target being that all too important $1600 level. On the flip side, look to be short gold with a move beneath $1542. I don’t think a virus from China is enough to push gold up there alone, but should there be anything else that might come out updating the situation for the worse all bets are off. Traders should be using futures options to get exposure to gold when something as potentially serious as a “worldwide epidemic” is in its early stages.