Chart Of The Day: Gold Headed For Another Record High?
Investing.com | Dec 22, 2020 10:04
Volatility is back. The VIX, often referred to as the “fear gauge,” has been on the rise since the market's November low, providing a negative divergence to stock prices which just keep vaulting to new records.
But a new, mysterious variant of the coronavirus in the UK—just as vaccines are finally rolling out worldwide—is making everyone nervous. This could be the fundamental motivation for investors to finally rush back into gold. That and the dollar’s downward trajectory}} over the longer term.
We should say upfront, we've been wrong before about the precious metal. After it hit its current all-time high of $2,074.88 in August, breaking its own record for the first time since 2011 (something we did forecast), the yellow metal didn't do what we thought it would.
While we were spot-on regarding the {{8827|dollar’s downturn, we thought gold would continue higher, rising both because of its dollar-denomination as the USD weakened as well as because of the non-existent yields coming from the greenback as it slipped, which should have made gold more attractive to investors—or so we thought.
Now we think a gold breakout is in the cards again, though we can't know for sure, of course. Currently, it’s still within a medium-term downtrend since the August peak. However, we are seeing signs of a reversal.
We'll start by noting the bigger picture, as it looks on the commodity's longer-term, weekly chart.
Gold found support by the 50-week MA, underscoring that the long-term trend is still up, despite the drop since the August all-time high. Also, both the weekly RSI and ROC are in position to bottom out.
Now, we'll zero in with the daily chart:
While gold swung from sharp gains to losses, on Monday, as well as today, it found support above the neckline of a small H&S bottom. Traditionally, a H&S should last at least 3 months, though this one is just a month long.
On the other hand, markets seem to have accelerated their pace of movement, as we've seen in this year’s fastest bear market on record, only to be immediately followed by the quickest exit from a bear market in history.
Get The App
Gold's decline over the last three days occurred within a tight range, demonstrating remaining demand, while yesterday’s deep penetration to the neckline, followed by its rejection, reinforces the view that demand is overcoming supply.
The RSI is testing its support—both of its uptrend as well as its previous highs. The ROC is forming a falling flag, but most importantly, it's happening right on gold's highs going back to October. That's typical for bullish flags, as fresh bulls pick up positions vacated by early bulls who are cashing out. That also fits the H&S penetration.
A note of caution though: the price is still trapped within a medium downtrend, well defined by the falling channel. It's been unable to break through the seller’s line since nearing it on Thursday.
That resistance goes hand-in-hand with the dynamics of a potential reversal, serving as a tight coil before it springs. If it springs.
However, if the price falls back below the short-term rising channel since the Nov. 30 low, momentum would rise, to continue along the medium-downtrend, framed within the channel.
Perhaps gold's decoupling period with the dollar is over and the two will now resynchronize. Whatever happens next, a short right now could provide risk-takers with an attractive risk-reward ratio, before the precious metal heads higher.
h2 Trading Strategies/h2Conservative traders would wait for a decisive decision by the 'collective' trader as to whether the commodity continues along its short-term rising channel or via its medium-term falling course. Traders in this class, who only take the rare, ideal trades, would wait for a minimum 3 day (preferably to include a weekend), 3% filter in either direction, followed by a return-move to retest the trend.
Moderate traders would be content with a 2-day, 2% filter and for a corrective, take-profit move for a better entry, if not for confirmation.
Aggressive traders may enter a contrarian trade, both to the current selloff and to the medium-term downtrend, and go long, provided they understand and accept the risk and keep a tight trading plan.
Trade Sample
- Entry: $1,869
- Stop-Loss: $1,859, yesterday’s slow
- Risk: $10
- Target: $1,969
- Reward: $100
- Risk:Reward Ratio: 1:10
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.