Gold – Even Grandmothers’ Are Concerned

GoldHi All,

I started off writing this as a commentary but somehow added lots of non technical coverage. So I thought I will just make it an interesting read instead.

Anyway, in case you didn’t realised, Gold price went on “free fall” mode and everyone in town is talking about them. I even got a call yesterday from an online entrepreneur friend who asked about it. When I asked him why, he went like “Well, it’s the talk of the town at the moment.” (ok, those are not exactly his words but it’s something along those lines).

Grandmothers Love Gold Too

In many countries and cultures, Gold is one of the few things that even grandmothers would invest to keep underneath their pillows or in a treasure box buried in their backyards. Gold is also used for aesthetic purposes especially during auspicious occasions in many parts of the world. Again, our grandmothers will often insist that Gold price will never fall, so there is not much to loss getting some for special occasions.

Just to be clear, I genuinely do not follow any fundamental information about Gold and the “Grandmother” story above is as fundamental as it gets. But my point is this, unlike stocks or currencies, Gold is a pretty emotional commodity because it does receive genuine interests and/or concerns from end users globally – including the butcher, the banker, the electrician and the store keeper down the road – because their grandmother’s say so (may be).

With the fall in gold price, I cannot help but wonder what is on the mind of global buyers, sellers and end users right now. What is on the mind of global hedge funds and commodity traders? More importantly, I am trying to anticipate how the global traders will react to such a large movement in price.

Which leads me to my next point.

Psychology of Traders

Often (and not always), when price falls, FEAR has a more powerful impact than GREED. And this is based on historical price charts where prices always fall faster than they rise. Now that price has broken the major 1500 psychological level and reached a low since 2011, the idea of “Gold prices never fall” from our grandmothers is now invalidated. Hence, I am not surprise if prices would continue to go further down in the longer term.

Honestly, who knows what is going to happen to gold price tomorrow? But instead of leaving it open-ended, I really want to see what Price Action shows me. The stories of buyers Vs sellers are ever so important to me as a trader because these stories will tell me who the winner is in the market. Once I figure that out, I’ll just follow the winner.

Technical – My Favourite Tool

16 Apr - Gold Daily

(Click on image for larger view)

So, now back to what I know best (not because I am a technical wizard but because this is the only trading tool I have). As you can see from the weekly chart above, there is definitely a potential for a beautiful 4 touch channel. Of course, this will only happen if price continues north from here. However, irrespective of the channel, Gold has been making Lower Highs and, now, it just made a Lower Low. This is definitely a textbook bearish pattern.

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It looks like the break below the 1500 level has now changed the upward trend that has been going since… a long time?

Conclusion

What are the fundamental traders thinking? What are other technicians drawing?

This is why I really love trading. As I write this, I am sure someone from a different continent of the world is looking at the same chart and drawing the same lines as I am. And the chances are we will have a different bias for different reasons.

Hence, this is only my view and I am writing to share. If you have a different view or something to add, please feel free to comment your view at the bottom of this page.

 

 

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