[Watch today’s video update by clicking on the picture above to find out where the key support and resistance levels are in gold.]
With the US Fed going to water and completely changing its tune on future interest rate rises, it isn’t just equities that are seeing buying pressure as a result. Gold has turned sharply higher over the last few months and looks like it might be getting close to testing overhead resistance around US$1,400.
It makes sense that gold would start to rally if interest rates are going to stay lower for longer. If the recent weakness in economic data worldwide continues, gold may even become a safe haven investment again.
The price action in gold over the last few years has been constructive but not overly convincing. There is still some ambiguity about whether gold is stuck in a consolidation phase or turning back up. The most recent pivot was a buy pivot in December last year. So, from that point of view, until we see a sell pivot, we can look for buying opportunities.
But where are the buying opportunities? Do you just buy it blindly because you have a fundamental view that gold could rise? Where are you proven wrong?
My approach to these questions involves understanding how key bars evolve in a trend. With each new key bar, you have a new range that you can apply calculations to. Support and resistance are mapped out for you so you can act without thinking at the spots where you know buying and selling pressure should be.
I explain what key bars are in the update and then analyse gold using key bars so you can see how they have traded in the past. Then I give you the current levels to keep an eye on going forward.
By creating a map of price action with clearly defined rules you are on the way to overcoming paralysis by analysis. You also stop yourself from doing dumb things just because you felt bullish or bearish on any given day.
Without a map you are at the mercy of the market’s gyrations. You will be tossed around like a ragdoll and will spend your time in positions watching every tic and feeling elation or despair as you go in and out of the money. Not only does it wear you down mentally, but it usually means you end up making decisions at exactly the wrong time because you are reactive rather than proactive.
Any model you create has to have some relationship to actual price action, but the fact is it will never explain all price action. It is a map and not the territory. So, you always have to be aware that you are simplifying what is an incredibly complex phenomenon. But without a bit of simplification you are faced with a sea of grey and it is odds on that you will drown.
Editor, Alpha Wave Trader