Why I don't sell Gold just yet: hidden clues of strength

In one of the previous articles, I was writing about my potential bearish view on Gold. It was backed by observations and current market structure. Though, we have to closely monitor the price action since it can add a missing piece to a puzzle.

The strong price action vs the weak price action

Observing a price action of your preferred trading instrument may be an eye-opening experience, but you have to know what to look at.

There is a major difference between a “healthy” trend (which is driven by a notable demand) and a fast shakeout generated by short-covering or a sudden news release (the former type of price action is unstable and usually has decent odds of price rebounding).

A healthy, strong trend always tries to test previous intraday extremums like it is shown below. It is “breathing”, and this “breath” is very important for the ability of this trend to continue (or, at least, to hold at current price levels). It means that we have a fair distribution between supply and demand.

Chart

If the demand is not consistent, yet very aggressive, the price is pushed to unfairly high levels very quickly. It occurs during gaps or big sharp breakouts. Just take a look at AUDUSD and you will understand my concept. Each time the price was trying to get outside the range, we could have observed a very rapid move, supposedly, created by a short-term money. Unsurprisingly, every time price was getting back into the range after that.

Chart

The current moment for Gold

Currently, Gold has been showing enough signs of strengths following my logic above. That’s why it is not reversing after reaching intermediate-term highs. My hypothesis is that Gold now is being accumulated as a protection by the broad range of market participants, “just in case”. It can’t create an uptrend on the one hand but makes this asset strong enough to not let it decline.

Chart

Good luck and have a good trading day ahead!

 


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Trading the financial markets is associated with increased level of risk. Past performance is not indicative of future results. All materials are provided for educational purposes only and by no means may serve as a trading or investment advice.