Chart Of The Day: Gold In Ideal Position To Take On The $1,700 Level
Investing.com | Mar 02, 2020 12:38
As gold sold off together with the U.S. dollar and equities over the past week, it's sent out very confusing signals. Investors and analysts struggled to make sense of it.
Get The App
Get The App
For example, ECL SALES left a comment beneath yesterday’s post that said: “gold had declined in 2008 too with the stock market. All asset classes had declined in tandem.”
While this is narrowly true, the big difference is that the dollar was surging, making gold more expensive. Now, the dollar was selling off with the yellow metal. So, what was holding gold down?
Get The App
Get The App
Another comment, from Anthony Dadlani stated: “there was panic selling with gold getting hit in a risk off market. It was a source of capital to meet margin calls.” And it's true that some have indeed made that claim .
Get The App
Get The App
But that would mean that the same investors who believed enough to invest in stocks also feared risk and demanded gold. To be sure, there is hedging, but would hedging take gold to its highest since 2012? Even if it did, today’s rebounds in futures may suggest that margin calls have been met.
Gold is now in an ideal position for a rebound, but then again, so are shares. Could both rally together? They did after Trump’s victory. One thing that would be sure to make the precious metal's ascent lighter would be the dollar extending its rout after the Fed signaled a rate cut, falling through an uptrend line since the beginning of the year.
Get The App
Get The App
Get The App
Get The App
Gold dropped from its 7-year high to the very top of a previous continuation pattern, whose apex coincided with the August-September highs. The 50 DMA also showed up for added support.
On Friday, the precious metal touched the top of the pattern and jumped a whole percent. Today, gold added to the climb, wiping out about half of Friday’s losses, forming another dip in the rising series of peaks and troughs.
Get The App
Get The App
So far, all this paints a very bullish picture. The only caveats are the leading RSI and lagging MACD indicators, which are providing bearish signals. We, however, think the disorderly market dynamics account for these conflicting signals and feel more confident paying attention to the meat of technical analysis, price action.
Get The App
Get The App
Conservative traders would wait for the market to make sense — for gold to rise when equities fall — and for the technical indicators to line up, with the MACD and the RSI turning bullish, before risking a position.
Get The App
Get The App
Moderate traders may risk a long position if the price returns toward the $1,570 support of yesterday’s low, or at least toward the $1,590s level of the late-January highs.
Get The App
Get The App
Aggressive traders can enter a long position at will, providing they understand the risk of a whipsaw back toward the pattern.
Get The App
Get The App
Trade Sample
Get The App
Get The App
- Entry: $1,600
- Stop-Loss: $1,570
- Risk: $30
- Target: $1,690
- Reward: $90
- Risk:Reward Ratio: 1:3
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.