After the Chinese played their devaluation card this past week, maybe gold is ready to forge up to new highs for the move.
Fundamentally, this past week gold futures have posted their largest weekly gain in about two months. The reason for this is that gold has been trading as a safe-haven in light of the potential "currency-wars" that China has started. It has been a long time since gold has traded as a safe haven, so I'm not completely convinced this will continue. But as far as I know, we have seen the Chinese devalue the yuan by 1.9% and 1.6% respectively. They did this at the spur of the moment and it was a complete surprise to just about everyone, so the unpredictability of the Chinese is what could push gold either way. Overall, whether it has been the gold futures, the stock indices futures, the foreign currency futures or the USD index futures the reaction to the Chinese yuan devaluation, it has been very unpredictable. It seems even the big money traders are a bit confused on how to trade this. My opinion is that a continuation of the devaluation of the yuan could cause a stronger USD.
Technically, I have added my favorite technical indicators to the gold chart below. They are the 10- (red line), 20- (green line), and the 50- (blue line) period simple moving averages (SMA). I have also added Bollinger Bands (BB) (light blue shaded area) and Candlesticks (the red and green bars). On the daily chart below each bar or Candlestick represents one day of trading. I have coined this combination of my favorite technical indicators the 10/20/50/BB Trend Finder system. These few technical indicators tell me several different characteristics about the market at a quick glance.
On the daily Gold chart below I have the first three items I need for a complete "10/20/50/BB Trend -Finder" buy signal. First, I need the 10-day SMA to point up. Second, I need the cross of the 10-day up and over the 20-day. Then I need the market to trade above the 10-day SMA. All of these have taken place. The final item I need for the buy signal is for the 20-day SMA to point up along with the 10-day SMA. At that point I will have a complete buy signal. As of now we have three out of four items in place so stay tuned.
October gold chart, daily
Options play: Once the buy signal is in place, some good plays I think could be to buy calls or bull call spreads with a put for a hedge or an "insurance" policy in case the trend changes to down dramatically. I would recommend this in a 3 to 1 ratio as always. Buying calls or bull call spreads have a limited risk.