Gold Might Be Making Its Move: What to Focus On

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The last few weeks we have focused on two specific trades that have the potential to really pay off. On one hand we have the EUR/CAD, which we are still keeping an eye on, but we have also been watching the price of gold against the US Dollar. This is the trade we want to focus the most on right now as gold has crossed our trend line and now we are waiting to see if it ends there at the end of the week.

Looking at gold

Gold has consolidated downward in the past couple weeks. In fact, gold continues to fall almost daily and some investors are surprised by these trends. The lack of good news from the US normally indicates that the USD will weaken which is usually good for gold. In Europe, the weakening Euro should also strengthen gold.

Yet neither of those two scenarios is occurring. But there is some good news from all this turmoil. Some optimism exists that band aid solutions like austerity, which is failing, will not be accepted anymore. The demand for sustainable long-term solutions in Europe is encouraging, even if we have some temporary slow times.

So what’s the deal with gold? With the Euro looking in turmoil and the good news from the United States slowing down you would think gold is set as a safe haven for traders right now. Some traders see this as solid evidence that gold has to be set for a rebound and a breakthrough while others wonder how far gold can still fall. The search for an answer brings up several important points that might help explain why gold still is not quite taking off the way many traders would expect, given current market conditions.

There are several reasons why gold prices might be acting the way that they are. One is that despite the current upheaval in Europe, the political situation has been much worse before. The once major Iranian threats of oil sanctions have faded. Oil is below $100 a barrel, which at one point, really weighed on markets and drove gold up.

Another factor is a cooling from the lower retail ends of gold. This is especially the case with jewelry and coins. While the price of gold was skyrocketing, demand was high for both. But this demand has cooled quite a bit in recent weeks. The situation in India has also weighed down on gold and even caused nation-wide strikes. While these events are coming to an end, the decision to keep prices and tariffs much higher than before is tempering the mood.

Finally many traders have been watching technical indicators. In recent weeks, the technical indicators have been showing a downward trend towards consolidation. Some speculate that this has only further reinforced the recent market movement downward when it comes to gold prices.

Gold is still seen as a good safe haven for investors who are skittish on the currency markets. However, the current unease in Europe seems to be doing more to support the USD (at least temporarily) than gold. If the USD remains strong then that could continue to encourage a decline in gold prices.

As we have noted before, the thing to watch for on our charts is the trend line. The price of gold broke the trend line; that means that we want to see if it closes the week outside of there and act accordingly.

So what about the EUR/CAD?

This trade is still fully in play; although at the moment, it seems the currency pair is stagnant right around the 1.300 mark. Some were hoping to see the reversal from last week confirmed, but the most recent price ranges seem to be in counter-trend mode. This is a trade that we still believe in keeping open and that may yet result in a breakthrough. But at the moment, it is not moving in the same way that gold prices are.

Gold

We are looking for a Trend Finder arrow now that gold has closed below our long-term trend line.

EUR/CAD

We are still waiting for this pair to close above or below our trend line and a Trend Finder arrow to trigger to place a trade. This pair continues to consolidate.

So what’s this mean to us?

The course of action is pretty obvious based on what we’re seeing right now. The EUR/CAD trade is one we’re going to hold steady on until the currency pair starts moving again. Until then, you could refer to that trade as a holding pattern. Stay with it until we see where the movement is taking place – a breakout is still possible!

When it comes to gold, we watched the price move past our trend line, so we’re watching to see if it closes out there. This is the big one to look for as we watch for a Trend Finder arrow to appear.

Good investing,

Jason Fielder

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