Key Levels to Watch for Gold Futures

Gold futures have been relying on crucial support at the $1,080 level as a cluster of resistance levels looms overhead

Oct 2, 2015 at 2:00 PM
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    The market's relationship with gold futures is somewhat unpredictable. The precious metal has burnished its reputation as a "safe haven" over the years, providing a place for investors to flee when the action in equities grows particularly volatile. However, in the post-financial crisis era, even gold itself has lost some luster in times of panic, with futures tending to fall right in step with stocks and oil on the market's ugliest days.

    As investors consider a persistently choppy, volatile equities backdrop -- along with an increasingly antsy chorus from Fed officials amid bouts of hot-and-cold economic data -- it seems unlikely that investors will resolve their turbulent relationship with gold futures anytime soon. With this in mind, we've highlighted a few critical levels for gold futures, as noted by Schaeffer's Senior VP of Research Todd Salamone -- which should serve as a road map for those trying to divine a possible trade set-up for the precious metal.

    The first horizontal line below sits at $1,350 an ounce -- which represents double the contract's 2006-2007 congestion area, as well as the November 2008 low at $675 (the third line on the chart). Notably, $1,350 also marks the area of the 2014 high.

    Next, we come to a cluster of notable price points right around gold's current perch. The $1,170 level -- site of the Aug. 24 top -- marks a 10% pullback from the 2015 closing high of $1,300. Slightly north, but still right in the same neighborhood, is the 200-day moving average, currently located at $1,177.30. And beyond the 200-day lies $1,184, which could prove to be a major sticking point for gold futures, as this marked the site of their final 2014 close.

    With this trio of resistance levels clustered overhead, gold has leaned heavily on support around $1,080, as represented by the dashed line on the accompanying chart. This area contained the contract's lows from late July through early August -- a period of consolidation that preceded a pop higher for gold in the days that followed.

    Reinforcing the significance of the $1,080 level is the fact that it represents a 20% correction from the aforementioned $1,350 price point -- and it's also 1.6 times the contract's 2008 low at $675. As such, a break below $1,080 by gold futures would be quite serious.

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