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Potential 'Long' Gold Trade

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So the logic of the short trade idea was good (see my posts above) but it didn't pan out and serves to highlight the difference between investors and speculators. To recap, the idea was that the sharp rise from Tuesday onward was due to speculators entering the market betting on a dovish FOMC minutes release driving price up to resistance where they would exit causing a correction down (sell at 1360 - stop loss at 1380).

But the minutes were more hawkish than expected so the speculators abandoned their positions immediately hence the drop back down to near the Tuesday morning level. The investors are not selling and quite right too, the sellers are the speculators who got in on Tuesday looking for a short term gain.

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@Caseynotes, yes it was an interesting idea and I could see you logic behind it.

There has been a small healthy correction and Gold is trading $1328 at the time of this post which is down from the $1341 levels. 

I do think there is another leg up to come very soon as US indices are looking a bit 'exhausted' from a trending perspective and they are clearly waiting for news either positive or negative to steer them to their next destination. If the destination is downwards and it is a quick sharp move then I can see Gold providing a quick sharp trend upwards. 

What is interesting about this particular Gold trend since August 2018 is that it has moved up along with US indices moving upwards albeit a strong drop in this journey.

There is a myth that Gold and the US Dollar cannot rise together and that Gold only goes up when the US Dollar is weak. There are instances when both the US Dollar and Gold have risen together and when some of you may want to look at what happened to Gold when this last occurred. I shall leave it at that. Suspense!

 

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@OceansJess,

In terms of trading Gold you may wish to start off by just monitoring the price action of Gold. Just live and breathe the price behaviour of Gold so that you are fully in tune with it. Identify what happens on days it goes down and what drives it to go up. Then try and look at how you would enter and exit such a trade. What would be the better entry points? Look at oscillators and see if you can use them to try and execute better entry points. 

Also at the same time try and understand the fundamentals for Gold. Understand the supply and demand of the hard metal and the production and mining of Gold. 

Research Gold's historical performance and establish how it has reacted in the past. This by no means is a guarantee that it will behave the same going forwards but you get a more rounded knowledge on the asset to help you make an informed decision on whether to trade it, invest in it or neither. 

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@Caseynotes,

From a fundamental perspective there will be supply/demand implications. So output from SA is declining. Add uneconomic uncertainty and then price action / trends and you have a 'perfect cocktail / storm' for an aggressive trend and price behaviour upwards. I accept it does not always play out like this due to speculation, contrarian moves and aggressive short selling creating intense volatility but the potential is there for a major move upwards in Gold. 

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If the trend strength continues in the same manner with Gold, it could potentially see anywhere between $1360 - $1380 being hit by end of April 2019. This is an assumption based on current trend strength and momentum. 

For Silver I can see the $16.50 to $17.00 level could be potentially met by end of April 2019 if the trend continued in the same vein. However, Silver seems to be weakening more so than Gold so I def. see Silver as a more risker trade than Gold. It will have more volatile price movements (so for short term or day trading may be better). Gold is the less riskier and less volatile trade for a longer term perspective. Again this is an assumption based on current trend strength and momentum which is looking more weaker than Gold.

I try to use assumption based modelling techniques and try and make assumptions which I then test using the price actions and trends that follow. There is absolutely nothing wrong is making assumptions and then testing them. This is a form of 'forward testing' which I actually thinks adds far more value than simply a pure 'backtesting' strategy. If I really want to see how effective my trading system is then I think it is crucial to have some form of 'forward testing'. 

Both backtesting and forward testing by themselves have flaws. By using them both when devising a trading system for a particular asset can be more beneficial. Offering a balanced view it must be noted that even by doing this does not guarantee any success of profits. It merely increases your knowledge, experience, understanding and odds/probability in executing successful trades. 

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From a chartist perspective it seems Gold and Silver are gearing up for the next leg up this week. With US-China trade extension talks it may well just allow this to happen. 

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Gold and Silver still pausing for breath as we all await its next direction.

The upward trend is still intact so it should be upwards but the price action will soon put us out of our misery. It seems these corrections along the way could attract more investors and traders to both Gold and Silver. 

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I'm sorta watching gold now after seeing the past week's moves.  I read something interesting about Barrick - they are a company I think.  Gold miner.  According to the article what they do seems to be a good indicator for the price of gold.  Who knows - but it made sense to me.  Someone other article is likely to disagree.  ? 

What do you think @TrendFollower  ?

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@OceansJess,

I think the best way to follow Gold is first of all look at its price action. Support this by looking at whether the trading volume and open interest is increasing or declining. Have a look at trend strength and momentum. Try and establish if investment firms are increasing their allocation in Gold within their clients investment portfolios and Gold related investment funds. Look at supply and demand which will include what large Gold mining companies are doing.

Read about the latest news in relation to Gold. I attach a link which you may find useful.

https://www.ft.com/gold

Here is another link which you may find useful.

https://www.dailyfx.com/gold-price

World Gold Council

https://www.gold.org

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Gold and Silver have both seen sharp downward price moves. This has occurred before.

Profit Taking + New Short Positions + Stop Losses Triggered = Sharp Downward Correction

Gold and Silver should rally back up after a short sideways dance. Gold needs to stay above $1306 otherwise we could see a bearish trend emerge. Silver needs to stay above $15.59 area otherwise it could be bearish. 

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@TrendFollower, given that a war seems to be breaking out between two nuclear armed countries (Indo/Pak) you would think Gold would be making a bit more of an effort.

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@Caseynotes, an excellent question. This deserves an detailed answer but not via my iPhone. I shall respond with my thoughts when I am back home and in front of my iMac. 

Very good question. To be answered soon by TrendFollower on an IG Platform near you.😄

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@Caseynotes,

Back home after a gruelling 13 hours away so let me try and articulate my thoughts on your question. Please remember they are just my thoughts so open for discussion.

First of all the market does not always react like we think it will. Remember the market is showing us a picture around six months into the future. Also due to Gold's large / bullish rally there was bound to be plenty of profit taking, stop losses being triggered and short positions opened. Also it gives Gold a chance to test its recent higher low to potentially consolidate its next leg up if that is to occur. 

What I find rather interesting is how Cryptocurrency prices are reacting and holding firm with India / Pakistan conflict in mind. One must remember that Asia is a big player in Cryptocurrencies. However this is for another thread. I am just thinking and typing at the same time as I have very little time. Please accept my apologies. 

One would expect safe haven buying unless this is already price in of course. The biggest driver for Gold at the moment in my opinion is the US and the US Dollar of course. I would have expected such war tensions which includes India whom is known as a big Gold acquirer to really move the Gold market but we may need to see this along with a weaker US Dollar to see any significant upward price moves in Gold.

I am not sure if you are aware but India is around the 2nd largest Gold consumer in the world. A lot of Gold is also smuggled into India from the likes of Sri Lanka and the Gulf. Someone in Calcutta was caught with around 10 Troy ounces beneath his hairpiece! Yes that's right hairpiece. 

I would expect Gold to move higher if further more serious escalation were to occur between India and Pakistan but normally this move happens in anticipation prior to any such event so this is def. one asset to keep a close eye on. Gold could see some dramatic upside were anything to be reported by the media of seriousness between India and Pakistan. Unexpected sharp rises could occur so anyone thinking of shorting could be caught out. That said if Gold was to drop below $1300 then I think we could see further selling pressure and shorts opening. Silver is already looking a lot weaker than Gold from a chartist perspective so tricky times and a tricky trade at this moment in time. 

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@TrendFollower,  Gold remains completely unperturbed by the imminent threat of WW III and in fact is going in completely the wrong direction, either today's gold traders are made of sterner stuff than their counterparts of yesteryear or have simply decided to take a very relaxed view to the upcoming end of the world.

Another explanation may be that they see the US-China trade war is entering it's end game and are thereafter expecting the next leg up for world stocks.

image.thumb.png.207fdf68c58920b9e152fda30b4d7d39.png 

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@Caseynotes,

Gold is merely seeing a sell off / correction at this most recent moment in time. 

If you look at the price action from August 2018 to now (past six months) then the price action has been extremely positive on the upside. 

I have openly stated on many occasions that I am not a fan of Gold and this example of India - Pakistan conflict and Gold not reacting like one would expect is exactly the reason why.

My personal view is that the new younger generation are not going to acquire Gold like the past generations have. The future is digital assets and digital Gold and I saw glimpses of this from Asia during Trump / North Korea rhetoric a couple of years ago. They started buying Bitcoin during that period. I actually studied the days the media reported Trump / North Korea rhetoric and the price of Bitcoin and I even posted (if memory serves me correct) on IG's Community Forum highlighting such trends. 

Gold could continue to go up aggressively after this correction is over. I think March 2019 will be an interesting month for Gold with Brexit and US-China trade talks. 

 

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This is the biggest drop / correction to date since the bullish move in Gold started around August 2018.

US Equities are driving upwards and this tends to reflect negatively on Gold prices as capital is being allocated to Equities rather than Precious Metals. 

Opportunity Cost as they would suggest in economic terms.

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Gold has dropped hard and fast. It has breached the $1300 level which means a bearish phase to me. Silver has dropped just as aggressively. This is with the backdrop of Brexit and India-Pakistan tensions. The stronger US dollar is not helping matters. I think the US Dollar has played a part in this deep sell off. 

Both Gold and Silver have gone below their 20 and 50 DMA's. Silver is awfully close to its 100 DMA and Gold is on its way there. I personally would not suggest anyone try and be clever and go 'Long' on both Gold and Silver while we are witnessing a 'Falling Knife' scenario and an aggressive drop such as this. By all means go 'Short' even if it is a short term trade but I would recommend waiting for a trend reversal confirmation before going 'Long'. This may present a better entry point to a longer term upward trend but patience and trend reversal confirmation will be key.

It is possible that this large drop leads to further downside pressure or is the big correction before the next bigger leg upwards. At this moment in time I do not know which so all one can do is monitor the price action closely. 

 

 

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Both IG and @Caseynotes are suggesting that Gold could be heading towards $1277 support level. 

If it were to breach that then the drop could be amplified through profit taking, stop losses being hit and short positions increasing. 

Now the question is whether anyone on the IG Community is short and if so at what price and what indicators they used. What was their rationale behind such decision making?

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I just watched the Jim Rogers IG interview with Victoria Scholar. 

I have openly stated several times that I am not a fan of Gold but on recent occasion was merely trading price action and a trend which presented itself. I try not to get emotionally attached. 

Jim Rogers mentioned something interesting in his interview and I share his view. When the US Dollar is getting stronger and going up then Gold tends to weaken and go down. This historically has happened more times than not though not always. There are instances when both have gone up together and when they have, Gold's price performance has been spectacular. 

Right now we are seeing the US Dollar strengthen and Gold (which is priced in USD) weaken. Whilst this trend / pattern is playing out then I do not feel bullish on Gold at this moment in time. 

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I am not surprised to see both Gold and Silver up a little bit this morning after the price action US indices had yesterday evening.

Now I do not know if Gold is going to go down to the $1277 level as suggested but if it does then it could trigger a lot of stop losses and increase further selling pressure and the opening of new shorts. This could lead to a sharp move downwards. So anyone looking to buy in at cheaper prices must beware of this risk. One must not get hurt by a falling knife scenario. 

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The drop in Silver has been steep. Nearly a 100 point drop which is has occurred rather swiftly. 

 

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Silver has gone below its 100 DMA and is heading towards it 200 DMA. If that were to be breached then this would be extremely bearish for the precious metal. I do hope traders on IG Community have been short Silver. 

Gold is heading towards its 100 DMA but not there yet and there is quite some distance to go before its 200 DMA. What tends to happen is that Gold normally takes the lead on the way up which Silver follows and then overtakes when in a truly bullish bull market. On the way down, Silver takes the lead which Gold then follows but Silver's losses are far greater as it usually goes up higher on the way up. The higher an asset goes then generally the bigger the fall!

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With negative news coming out of both US and China and the Brexit vote next week, is this enough of a catalyst to push Gold further upwards? That is the important question at this moment in time. 

There seems to be upward movement in Gold but this could be temporary before further downward movement. I am not sure. Also with US indices taking a drop this could be the next leg upwards. I think if Gold breaches $1300 and stays above this then it will be extremely bullish. 

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Gold and Silver both shooting up today which is what I was kind of expecting. Gold did briefly touch $1300 but could not stay above it. 

I see both posting gains for the next couple of days or so as this entices more investors and traders into opening new long positions or add to their existing long positions. 

 

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@Pikto,

The honest answer is that I do not have a 'crystal ball' so I cannot possibly know the outcome.

My personal opinion, gut feeling and instinct is that it will cut through $1302 before the Brexit vote. After that it all depends on the reaction to the outcome of the vote by the rest of the world.

There could be further downside movement and one cannot rule that out but at the moment there are 'recessionary risks' that major economies around the world face. There are increasing national debts in the US that do not seem to be managed effectively. There could be monetary policy implications going forwards.

For now I think we could see a couple of days of positive price action for Gold and then I don't know. These things always tend to go the opposite direction of what one thinks is likely to happen. So it could easily continue the next leg downwards. If you go long or are already long then just ensure you absolutely have a stop loss in place and if in profit a trailing stop loss based on your risk management strategy. You must have an exit plan and and opportunity to exit if the trade should go against you. 

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