Gold Trade: Long above $1250 with $1300 Target- here's why

Gold

Update: 8:31 AM

We are suspicious of V-shaped bottoms in Gold but honor the technicals and acknowledge our own subjectivity. Our personal preferred trade is to Sell the $1200-$1250- $1300 butterfly, with the objective it will go out worthless. The assumption is we will not be at $1250 in 30 days. Limited risk, limited reward. Set it and forget it

Background

Gold and Silver were pummeled last week. We have listed potential reasons in previous posts. Not the least of which being related to what happens when a leveraged fund is forced to liquidate and the execution is handled by a margin clerk who is about as sharp as a bag of bowling balls. After getting off my lawn, feel free to google "Who Concert" to get an idea of what happens when a panic starts in any venue.We are here to give you the full layout and reasons of what may be the trade of the year in Gold. In the very least, it is a lovely set up from a risk/reward perspective, whether you are a Bull or Bear. First the trade.

Risk $10 to Make $40

On Oct. 6, we noted that technically, Gold was about to offer up a "Bounce or Die" trade (original post here). Then on Friday, the weekly close gave the signal that the first trade was to be bullish.Here is the trade as depicted on Friday

Interactive Chart HERE

The Trade:

Bulls First

Buy Gold now ($1259 last) with a target of $1297-$1301
Daily Stop-loss for us is $1242 print or
Weekly Stop-Loss = settle under$1248 on a weekly close
Risk $11 to make $40
As profits accumulate, feel free to raise stops if it helps you sleep.
- although that is not sound risk reward management

Numbers?

$1250 is a big Technical support number with psychological value added
$1290-$1300 was an important level pre-breakdown for many technicians
Gold is oversold and the RSI confirms it

The Bearish Trade

Our Hobby, playing Don't Pass at the craps table and timing how quickly the table clears.-SK

Short Gold under $1242 on a daily print OR
Short Gold on a weekly close under $1248
The Target is $1155, a 67% retracement of the entire move higher
Stops should be geared to create a 4 to 1 risk reward.

Bull Catalysts?

Chinese Demand is back online

Chinese retail demand was at a standstill during its October " National Day Golden Week". Markets closed, national pride is on display, and traveling increases. The holiday begins October 1 and runs throughout the week. Golden Week is now over.

Indian Seasonal Demand will Increase

Demand for the yellow metal usually strengthens in the final quarter as India, the world's second-biggest gold consumer, gears up for the wedding season as well as festivals such as Diwali and Dussehra, when buying gold is considered auspicious

The Caveat?

Goldman Sachs recently recommended buying Gold under $1250 looking for a bounce. That corroborates our"short under $1250" feel. Cynical? Yes. Here is why

2 weeks ago GS advised their clientsshort crude in the $42 area with a tight stop
We watched again and again as the market pinballed between the clients getting short, and getting stopped out
Not a bad recomendation per se but
we would love to see who was on the other side oftheir clients sell orders
we would also love to see who bought the oil market and triggered the stops
And look where Oil is now?
Just saying. When a firm acts as analyst and broker to clients while maintaining its own prop desk, be aware of potential conflicts, accidental and otherwise.

Goldman Loyalists?

Precedent

Note, China has 3 Golden Weeks annually. This is a comparison year over year of the October 1 Golden Week only. The other 2 do not historically correlate as well as this one does. Which makes us say this is a Golden week with a side order of seasonality