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Gold is a trading affair, so here’s how to trade it

Friday, 9 Aug 2013 | 9:00 AM ET
Creativ Studio Heinemann | Getty Images

Gold is making an attempt to break out of its trading range, but we still need to see it close above $1,320.

Gold cleared out cleared shorts on Thursday when it reached above $1,296.90, and followed through to break above the psychologically important $1,300 level. And the rally didn't stop there; as shorts covered, gold reached a high of $1,313.6 in the session.

After putting in a new swing high of $1,316.20 in Friday's session, which is just shy of our light resistance point, the market has settled back slightly.

Traders need to understand that this is still a trading affair. After a week that was dominated by discussion of the taper, with some thinking it could come as early as next month, gold still did not break further. This tells us that Federal Reserve tapering is already priced into gold. And the big players, if you will, have already sold out.

(Read more: Gold heads for weekly loss as Fed doubts persist)

Marc Faber: Market has gotten too bearish on gold
Marc Faber believes that sentiment has gotten overly bearish around gold. He likes it for the long term, but he'd also buy it for a bounce.

So if it's a trading affair, then what are the key levels for trading gold now?

Look for a move and close above $1,325. This is a major resistance level, and it is now where a trend line comes in. A close above this level will signal a further run higher.

(Read more: The new warning sign for gold)

There are major resistance points to the upside, but it is extremely unlikely that we will see any $50 or $100 single-day moves higher. That means that longs who have built a position at $1,300 should use the resistance levels to lighten up, and the support levels to add back on.

Use $1,308.90 as a solid support level Friday, but a failure to hold this level will be discouraging. Only a close back below $1,300, and furthermore $1,296.90, will signal a failure.


Rich Ilczyszyn is founder and CEO of iiTrader. Follow him on Twitter @iiTrader.

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