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GOLD: rising during a disaster
Information is not investment advice
Time to worry
Simply put, things are getting worse. The virus keeps spreading, people keep dying, the Chinese economy is close to partial paralysis, the global market is scared. Amidst all this, gold keeps rising in value. In fact, it just woke up for the crisis alert. Have a look at an interesting dynamic visible at the chart below.
On the daily chart, the thickest trend line at the bottom is an uptrend that started in May 2019. It is not a new trend that emerged out of something, but rather a noticeable recent branching off of the long-term upward trend that gold has been in for the last 5 years. Strategically, even that large trend does not mark anything unique – it merely continues the gradual path of appreciation that gold left in 2009 and got back to in 2015. Hence, we can say, that is a “normal” dynamic for the gold price under “by-default” conditions.
The medium-thick trend is the one in power since December 2019. Note an interesting negative correlation with this one: it was exactly in that month when the US and China finally made up their minds about their intentions to make the trade agreement and announced that officially, to the joy of global investors. But gold took it as if it was no good news, and instead of coming down like it should when the market loses another reason to worry, it started growing in price even faster than before.
The thinnest like marks the most recent dynamic, which may be attributed to the Coronavirus – it’s the steepest rise. Again, note the following: when the Coronavirus broke out in the middle of the previous month, gold reacted with a moderate uptrend starting on January 14, taking off from the area of $1,542. By the beginning of February, it reached $1,595 but eventually dropped on the information circulating in the media that although Coronavirus was still a worry, it was close to being properly contained. As it turned out, not quite yet.
Therefore, gold has two “default” scenarios to get back to: steaming off and getting down to $1,542 (that’s if the virus is contained and the rate/geography of its expansion is staved off), or cooling down just a bit and following a sideways/rising direction at $1,595 (that’s if the virus keeps raging, but the pace does not accelerate). Currently, we are in the worst scenario: Coronavirus is there, it keeps raging, and goes with accelerating pace with no visible indicators that it will be stopped in the nearest future.
In this context, it is no surprise that the price of gold now is within the 7-year-highs zone. It would reach there eventually, but much after. Therefore, we can only put the intensity of news releases in a formal correlation to the price performance: since Thursday, the price rose from about $1,615 up to present $1,630. Now, it is the weekend ahead and probably it will bring some consolation to the market whatever the situation with the virus is. But if the beginning of the next week shows the same persistence of this natural disaster, that will be enough for gold to get to the area of $1,650 by the middle of the week, given the same pace of growth. That means, $1,700 is two weeks away.
Too bad to bet on the natural disaster, but this is the reality, and Forex offers chances to benefit even from such a dire phenomenon. So get prepared.
This week, there are a few high-probability trade ideas I'd like to recommend to you. Trading these setups, be sure to implement a proper risk management approach.
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