Why I’ll be watching Gold very closely over the coming months…
Today I want to provide some analysis on where I believe Gold could move to over the next year or two…
Before I get in to nitty gritty though, I want to make it clear that nothing concrete has shown itself to me yet in terms of an executable trade, since certain fundamentals are not available.
But I have noticed a few things on the price charts that could make a certain move apparent in the coming months.
Firstly, I want to pinpoint a move that happened in Gold back in 2013…
If you look at the chart below, you’ll see that Gold sold off very heavily here due to very strong US dollar fundamentals:
In fact, I don’t believe the US dollar had one negative month for about a year during that period.
That of course was negative for Gold, since the two assets are inversely correlated in the longer term.
So the strengthening US dollar saw Gold fall. But as I’ve stated in my chart above, the gold price could move up in the same fashion it fell… quickly.
And dollar fundamentals will be the cause again. Take a look at the chart showing the dollar index below:
Here I have incorporated two tools that I’ve been speaking about previously…
Key level breaks and retests and, secondly, bouncing zones (that is where markets move from supply to demand and vice versa and are attracted to zones, from where the market moves off vigorously).
Just a note, here is the inverse of the Gold move shown on the dollar chart:
It’s definitely important to note this 2013 move on gold because this is a massive inefficiency… price discovery has not occurred here sufficiently due to the market having very few buyers within this move.
What it also means is that there are stop losses all the way up between $1200 and $1800… and that means there is the potential for a stop cascade.
The concept of stop cascades is basically that if there is a ‘thin’ move (with way more sellers than buyers in the market, or vice versa) those traders will have stops all the way through the move.
And when price decides it wants to reverse, all of these stops will be hit reasonably quickly.
(For more information on the theory of stop cascades, please read this report by Carol L. Osler. It’s quite a high brow read, but it’s worth at least reading the conclusion).
This could happen with gold moving back to $1800.
Something also to note is that the full price move of gold since it has started trading as a future has rejected the 50% level back in 2015.
And that 50% level acted as support for Wyckoff’s ‘spring’ – as you can see from the chart below:
(For a refresher on the Wyckoff spring, please click here.)
This is quite potent, since we are looking at a higher timeframe here (which has more significance).
Another thing to note with gold and to add to the ‘edge’ of the bullish idea are the current geo-political events.
North Korea, Brexit, Middle Eastern issues and US political problems are all making a case to get rid of the dollar (as seen in the 2nd and 3rd charts above), while maintaining positions on risk-off assets and currencies… that is, gold, treasuries, Yen and the Swiss Franc.
As I said, nothing concrete has jumped out at me yet but one thing is for sure…
Gold is going to be a very interesting asset to watch over the next year, that’s for sure.
As always if you want further clarification on anything I’ve mentioned here, simply reply to this email and send your questions in.