Gold 1 OZ (XAU=X) price action suggests investor indecision
Gold futures are trading nearly flat on Wednesday, but inside yesterday’s range as investors continue to assess the potential damage from the coronavirus outbreak on the global economy. The price action actually suggests investor indecision.
Remember that gold is an investment and not a safe-haven asset as many brokerage firms have led you to believe so it can get overvalued. The true safe-haven is the Treasury market, and that’s where investors have been parking their money for protection.
Many traders are confused about the price action in gold this week in the wake of two huge breaks in the stock market. It seems logical to think that a pair of 1000 point loss days in the Dow should’ve sent gold prices skyrocketing, but that wasn’t been the case. The rally in gold actually stalled the first day, and lost ground on Tuesday.
I have a few ideas as to why the gold rally has stalled in the wake of the stock market weakness. One is value, another is hedge fund influence and a third is competition.
If gold is an investment then it can get priced too high and become unattractive to investors. Gold doesn’t pay a dividend or interest so an investor can only make money when it goes up. He’ll make even more money if he can buy it cheap and sell it when it’s overpriced.
On February 12, April Comex gold hit a low of $1564.40. This led to a seven day rally which took it to $1691.70 on February 24. The half-way point of that price range is $1628.00. On February 25, buyers came in at $1627.00 to stop the price slide. Earlier today, gold hit a high at $1657.10.
To put it another way, in less than two days, gold lost 50% of a seven day rally. But the correction was attractive enough to bring the buyers back in. This tells me that investors are now looking for value. This makes sense since the fundamentals are overwhelmingly bullish. All a good trader has to do is find the value zone and buy.
No oscillators, no indicators, just simple mathematics. Some say, “I couldn’t get it at $1564.40 and I don’t want it at $1691.70 but I’ll settle for the mid-point.” It’s a pattern that repeats in all of the markets.
The hedge funds are active in nearly all of the markets, but like everyone else, they can run out of money to invest, they can be wrong and they can get margin calls that force them to make major decisions like liquidate major positions. This may be another reason why the gold rally stalled.
Stocks were in a major uptrend just two days ago and because momentum was moving higher, there is no doubt the hedge funds were long and leveraged. When the selling started they probably liquidated some positions while hanging on to the rest. Some may have gotten margin calls and in order to meet those calls, they may have pitched their winning gold positions to cover the losses in the stock market. People do it all the time so why not hedge funds.
Lastly, since gold is an investment it competes with other assets for investment dollars. One asset it competes with is Treasury bonds. With momentum driving bonds higher as yields plunge, more money may be flowing into Treasurys than gold.
My advice is to wait for gold to move into a value zone before reentering. Like I said before, the fundamentals are bullish so it may be worthwhile to wait for a favorable price in order to get more bang for your investment dollars.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 1,564.80.
The projected upper bound is: 1,683.91.
The projected lower bound is: 1,619.42.
The projected closing price is: 1,651.67.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 8 white candles and 2 black candles for a net of 6 white candles. During the past 50 bars, there have been 33 white candles and 16 black candles for a net of 17 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 56.4040. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 69.35. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 1 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 95. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 6 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAU= closed up 13.127 at 1,648.207. Volume was 8,900% above average (trending) and Bollinger Bands were 108% wider than normal.
Open High Low Close Volume___
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1,616.07 1,560.90 1,479.66
Volatility: 16 13 15
Volume: 7,076 1,415 354
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAU= is currently 11.4% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 5 periods.