Keeping my Selling order / H & S forming slowly

9 Agu 2022

Since many Traders enquired regarding explanation regarding Gold correlations, allow me to elaborate the following with comprehensive answer:


The real answer to topic: Gold’s correlations is a tough one as sometimes correlations with other instruments work and others not so much. Personally I use of course DX (negative correlation with Gold) to project Gold's move on a Short-term basis but on the Medium-term it is other Fundamentals such as money supply (#M1) and the correlation with equities (positive correlation with Gold). Then again, I have the Bond Yield (my second main market at the moment) to be paying attention too which is also negatively (usually) correlated with Gold. Keep in mind that Bond Yields are Low risk assets like Gold and when they rise, Low risk Investors normally move capital from Gold to Bond Yields, hence Gold loses value. The same is seen lately with DX (representing the USD), which is used as a safe-haven, in the same time is Gold's primary function. Hence when DX rises in times of financial shock, I may see Gold decline more than normal due to the fact that low risk Investors withdraw capital from Gold to place it in the DX. A perfect example would be mid-March when we all remember that the Virus announcements on potential lockdowns worldwide initiated a meltdown on all asset-classes (Gold included) and the only asset Investors wanted to hold was the DX, which saw a massive surge.


What I do every day is keep a close eye on these correlations and try to understand on that particular session which one is moving Gold more than the other (monitoring all correlation charts on my desk). That is when I find quick Trade opportunities. So, Traders understand that the answer to your question is not very easy to give. There are numerous parameters to account to and even then, there are news that may distort all this.


Technical analysis: The Lower High’s trendline (which was holding since #1,782.80) and as the #1,788.80 - #1,792.80 Resistance zone practices strong durability, Gold turned Bullish again on Hourly 4 chart. If there wasn’t parallel Buying pressure from DX on Intra-day decline, this would be really Bearish Trading session, without any major changes. With light calendar throughout the yesterday's session, Gold is Trading under Buying pressure which is no cause for alarm. The main driver behind it is of course the pullback on DX (which surprisingly found the Support) and mixed values on Bond Yields, as the markets are trying to get back on it’s current “normal” Volumes. Gold will get out of this Bullish (Intra-week) zone if the #1,772.80 Support breaks, or #1,792.80 (market closing above) Resistance on the other hand. Right now this is where the Daily chart’s #MA50 is, which validates Selling sequence even more, but I've stated before, I’d prefer more the secure #1,772.80 breakout. I will continue Selling Gold on Short-term as long as DX is not pressured near Monthly Low’s. Gold erased last week’s losses and is marginally near the #1,792.80 strong Resistance on the Hourly 4 chart as, despite the decline on DX (my main market currently), Gold engaged the Bull spike however with possible correction ahead on a positive U.S. Trade deal environment and NFP aftermath. All those pointers were indicating strong Selling rally ahead, but as is the practice since start of the Trading Month, Volatility kicked in and reversed the Price-action near #MA50 on Daily chart towards my Stop-loss values. Technically, Daily chart is Bearish as I still don’t see further uptrend signs, only Selling sustainability. Current Price-action is suitable for Scalpers only as Gold was Trading within #10 point variance almost all session long. However, there is decent possibility for #15 Intra-day downtrend as today's Wall Street opening Bell approaches.


Fundamental analysis: The Medium-term charts Daily and Weekly still point to a Lower Price-action which reveals underlying Bearish Long-term trend and this is why I will keep Selling every rise on the longer run. A relative risk factor is off the markets and that’s why DX should rise (Stimulus news are already priced on the markets) and add more Selling pressure on Gold. Also, as long as Bond Yields are Trading near Support zone and break the Triangle downwards, their Descending Channel will be intact and will progressively apply Buying pressure on Gold, since Bond Yields attract risk seeking capital from Gold. I do expect however the currency speculators to push DX as High as they can ahead of this week’s Fundamental events in order to secure a more comfortable Selling entry in late session near the weekend break. I still give more probabilities to the downside with #1,755.80 as a first Target and #1,742.80 in extension. I am expecting #100 point decline once Fundamental dust settles. Under current market setting, I had no other alternative than to hold my Selling order over-night.


My position: I have engaged my Selling order with #1,778.80 as an entry point, order which is currently running with loss. I have no other alternative than to hold my order with #1,793.80, representing my Stop-loss value.