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What You Need to See Before You Buy Gold

Friday, 2 Nov 2012 | 7:03 PM ET

What's been going on with the price of gold lately?

Jon Boyles | Photographer's Choice | Getty Images

Gold found support at $1,700, and broke out of a small wedge consolidation early Wednesday. The market carried this momentum into Thursday morning, but bulls who bought with the plan to hold gold ahead of U.S. data got caught flat-footed.

Why? Because gold has joined the currency trade.

Let's flash forward to the market plummeting through $1,700 shortly after a larger than expected increase in Nonfarm payrolls this morning. The dollar is making new monthly highs, but has been depressed all year and if you have been making money on the short side, isn't it time to take profits ahead of the election on Tuesday? Well, short-covering means added buying. Additionally, the Bank of Japan says they are entering a recessionary stage, and data out of Europe has been mixed-to-disappointing at best. A stronger dollar puts pressure on commodities and right now, specifically on gold.

(Read More: Gold Settles Below $1,680, US Jobs Data Short Circuit Rally.)

It's currently trading just below $1,680, so do we just ignore the precious metal that is still trading up roughly 7 percent this year? No. the 100-day moving average is at $1,671, and the 200-day moving average is at $1,669.5. Furthermore, the 50 percent retracement this year is at $1,666.5. This tells me that there is going to be a lot of buying interest at this level.

So how am I playing gold now?

I want to see a consolidation above the supports just mentioned. I would not be surprised if the market trades below these supports briefly to clear out stops, but I want to see the reopen Sunday night and into Monday with the market above these key levels.

Follow me on Twitter, @Rilczyszyn, because my hand is on the trigger, and Sunday into Monday I am looking to fire the "buy" signal on gold.

Read on for 10 Things You Need to Know to Trade Futures

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