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Hey Top Traders,

Welcome to your weekly analysis segment,where we will be looking at all things gold.

Now, I know Top Traders usually have an FX focus, and so some of you are not too familiar with trading gold, but even if you aren’t, or don’t want to, it’s good to keep an eye on assets that could have an impact on FX pairs…

So, let’s get started…

Analysis

It was quite a turbulent time for gold last week that saw some issues occur in a wide split between futures pricing and spot prices. This caused many brokers to dramatically widen their spreads. At one point with my broker, the spread was at $12. It was later noted that the issues were caused by oil refineries closing down due to the outbreak. 

I have seen some mentions that gold is no longer a safe haven as it was selling off along with equities, after the massive move down a couple of weeks ago. I don’t believe that is the case. The consensus for the initial sell-off was that long gold positions were liquidated to cover margin calls. And, I think we saw a continuation of that (along with some gold bears) until around the 20th of March. 

If we also take a look back to the global financial crisis in 2008, we can see that gold also initially sold off. Now, I wasn't trading back then, but I imagine it may have been for similar reasons(that’s purely a guess, so don’t attack me if I’m wrong!). 

However, after that initial sell-off, we saw a massive run higher in gold, and I believe that is what’s happening again here.With more sell-side expected in equity markets, I think we will see gold rally higher as the flood to safe havens continues. Most economies are shut down, and although I still believe that the dollar is king, it seems that the US is the new epicenter for the corona virus spread with over 100,000 cases reported today. Trump is reportedly looking to quarantine New York, New Jersey and Connecticut,which will have a significant impact on the US economy, potentially causing more job losses (over 3 million in initial weekly jobless claims last week),which may result in more stimulus in the coming months. More stimulus equals more dollars, weakening the currency. 

And, that is why I believe gold will be acting as a safe haven once again, the US economy will now be a significant risk and investors will be looking for the next best thing, which in my opinion will be gold. 

We, of course, have to look for technical entries here, and at the moment if we look at the four-hour chart, we are seeing a lovely flag pattern form. I have an entry from $1495 that I am holding(stops moved to $1570) and I will be adding more size at $1546.

Check back here again next week for more gold analysis…

Speak soon, people!

‍

Posted 
March 29, 2020
 in 
Fundamentals 101

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