One of my most unpopular trade idea with followers has been my Gold and Silver short. The Gold crowd is really passionate about the metal, but I stress that I am still bullish medium to long term on both Gold and Silver. People forget that Gold has made an incredible move this year and was due for a pullback. First rule of market structure: nothing moves up or down in a straight line.
My trade idea set up was posted for our readers on August 20th. I followed up the trade idea on October 1st when Gold broke below our major support zone and confirmed our first leg down. The second leg finally occurred two days ago, when Gold broke below our support at 1860.
My target for Gold was the 1800 zone. We began testing this zone yesterday.
Using our secret weapon called the line chart, we can find zones of support and resistance more easily. As you can see, price is pulling back to this 1800 zone (my bottom band of this zone is 1792). We have had many touches at this zone, which is why it is a significant zone, and where we should expect buyers to step in.
Now taking us down to the 4 hour chart, we can see that price is showing signs of bottoming at 1800. What is another positive sign? That with 24 hours of price action, price just ranged. Gold is showing signs of basing. The buyers are stepping in and defending this zone. Technically, a buy trigger was initiated when the 4 hour candle closed above 1810 just 8 hours ago. If you are like me and want to be a bit more cautious, I would wait for a new high to be created on the 4 hour just to be sure ie: a break above 1817.
But the risk vs reward is great here for an entry and hold for the long term.
For traders, the next resistance zone would come in at 1850, which is where price broke below. Once we close back above this zone, we can expect further momentum to the downside.
Now I will be honest, I can possibly see one more leg lower on Gold, and I will tell you why.
Two reasons in fact.
First, the US Dollar is still holding its major support but by a thread. There is a chance we get a breakdown this week. But then again, there is a possibility we bounce from here!
I bring this up because Gold is seen as the anti-dollar. There is a negative correlation between the two: when the Dollar moves down, Gold moves up and vice versa.
The one thing which left Gold bugs scratching their heads was why did Gold fall when the Dollar was also falling?
This seems to be due to uncertainty tapering away. A vaccine now is only weeks away, and President Trump has begun the transition process. Fear has subsided and Gold, what some see as a safe haven, has sold off. The other side of the coin is price manipulation by certain banks.
Most of you know my opinion: central banks are stuck and we are due for a currency war. This US Dollar fall could be the beginning salvo of the currency war. We are expecting the European Central Bank to change policy in December, and a key aspect will be to try to weaken the Euro against the Dollar in an attempt to boost exports, cheapen the debt etc. The Federal Reserve will probably fire back and up their dovish rhetoric a few notches. This is super bullish for Gold and Silver.
Speaking about Silver, this is where my second reason for another leg comes in. I still want to see Silver hitting 20.50, which was my target laid out in the short trade idea.
However, the white metal is remaining above our support of 22.50. Silver did not break down below major support like Gold.
These two metals tend to move in tandem, so I am worried that if we get this US Dollar pop, Silver breaks below and moves lower to 20.50, while Gold makes another leg lower to 1750.
It really comes down to that US Dollar chart, and why on the Equity Guru Discord Trading Room, and also on our Youtube show which is broadcast every Friday, I have been hammering in the importance of the US Dollar chart and why it means so much for world and assets going forward.
We get this close and break below confirmed this Friday on DXY, expect this support zone for Gold to hold.