As my colleagues Rowan, Arslan, and Skerdian have covered in-depth, growing tensions between the U.S. and North Korea have sent traders running to safe-haven assets. The result has been December gold futures opening gap up for the second time in as many weeks.

Gaps in pricing are an interesting phenomenon. When trading gaps I follow a good portion of Steidlmayer’s Market Profile methodology. It can be a complex theory, but the basic gist is that markets move directionally then regress and trade to balance. In doing so, any “gaps” or “thin” pricing levels are filled in.

If the theory holds, we should have some forthcoming trading opportunities in the bullion market.

The Gap

North Korea’s test of a hydrogen bomb over the weekend certainly has the attention of both the international business and political community. As I write this, reports are coming in that South Korea is executing aggressive military exercises as a response.

This is a fluid situation and one that has the potential to wreak havoc in the markets.

December Gold Futures, Daily Chart

A few key technicals:

• The gap zone of 1334.5 to 1336.7 currently remains in tact. I will be watching for this level to be tested and fill in over the course of the trading week.

• Upside round number and psyche level of 1350.0

• 38% retracement of 3-day run at 1329.0

Gold has already tested the upper portion of the gap earlier in the session. For now, the intraday action is bullish, with the potential for today's candlestick to form a doji. The session close will be huge in setting up a game plan moving forward this week.

Bottom Line: There are many ways to trade geopolitics and global news items. Personally, I am going to wait and see what develops for the rest of today’s session and look to engage this market in the coming days.

Caution is a good word. Trade smart and for tomorrow!