Paying attention to trends and flows of trading and direction can be profitable. However, one can suggest that chasing a trend in the market is not a wise idea. As the market has been moving through a rather interesting up-tick of late, one might be wise to consider where things are at the moment and where they may, or may not, go in the future.
One particular area that one might consider, in this regard, is the gold play. This area of the commodities market has been doing quite well of late and could very well continue its move higher. Past posts have mentioned this with a certain amount of optimism. Just recently, however, indicators have begun to move in a differing direction.
The very first indicator, and most uncertain, is the US Dollar. This indicator is one that really cannot be gauged but has direct bearing on the value of all gold stocks. What can be followed a bit more reliably are the vagaries of the institutional investors. Puts, calls and volatility along with skew are all indicators of what the metal is valued at and whether institutional traders think the metal will rise or fall. Lately, the price of gold has been pushed higher by shear commodity trading and the US dollar’s fall.
However, what goes up must come down and there are indicators from institutional traders that this may be near. These things called “puts and calls” indicate a hedge against a stock or commodity. In recent trading activity, these investment vehicles have been increasing in the gold sector. There may well be room for gold to move up, but chasing a commodity that has had a solid run is something an investor should be weary of.