Ticker tape by TradingView

Want Trade Alerts?

See all of our entries, exits, and analysis. 
Use code READER for 25% OFF!
Join VIP

Trade Ideas on XAU/USD

Gold hit new yearly highs in the past few days touching around $1,778 as hedge fund managers increase their stakes on the precious metal. As the US government began quantitative easing to artificially prop the market up back in March, the dollar lost some of its value. Quantitative easing sounds very sophisticated, but it's really a very simple technique the Federal Reserve started doing a lot since the 2008 financial crisis. All quantitative easing means is the Fed is putting money into the market. They do this through the US Treasury, who prints the money mandated by the Fed, and then the Fed distributes it. Money is allocated to banks who have nowhere to put their money except into the stock market because interest rates are sub .25%. As long as the Fed keeps printing money, banks will keep buying stocks, and the value of the dollar will fall. And people will turn their money towards precious metals like gold.

Long Ideas

Some analysts believe that this metal as a lot more upside potential. A key indicator they're looking at is that inflation rates will rise on the USD. Basically, buying gold is a direct bet against the dollar. I don't think we've ever seen so much money printed in this given period of time than ever before. So, my bullish thesis is just another way of saying that I'm bearish towards the dollar.

According to Kitco News, investors fear that stagflation will occur. Stagflation is when inflation increases on a currency while the economy is in a period of economic decline or no growth. Right now, we are looking at 44 million Americans unemployed and output is very low. Numbers are much weaker than the same time last year. Usually, this would mean that the market drops and the value of the dollar rises, but this time, it's different.

It's different based on what I said earlier, that the Fed is pouring freshly-printed money into the market. Not only are we generating less capital in the economy, we are increasing the supply of money too, which inflates any currency. Inflation and deflation are natural in economics, but this is on a whole new level. Printing money is not the issue, it's how much is printed. I personally agree with this argument because trillions of dollars printed in a matter of weeks is going to cause a considerable loss of value in the US dollar.

In this particular case, the Fed has got your back... in the short term. Yes, we saw a great rally in the stock market and the USD since March, but this is just in the short term. USD pairs may not be much of a 'safe-haven' in the long run.

Here is XAU/USD on the daily chart. Resistance was clearly broken as prices closed above that level, creating a key support zone. Many bullish traders are looking at that level as a move that will turn sentiment bullish for gold. 'Safe-haven' sentiment is now being turned towards gold and lessened for the USD.

Short Ideas

Although I am bullish on the precious metal, it's important to always consider the other side of the argument. One problem that comes to mind when it comes to trading forex pairs is correlation. When the crash happened earlier this year, gold fell too. Pairs like GBP/USD and EUR/USD fell as well while pairs like USD/CAD saw an incredible increase in price. Anything USD-related pair will move with the US stock market in either a positive or negative correlation. Having said that, if the market were to fall again, it is likely that gold will too. This has been what happens in the short term.

Today, news came out that some states saw a record increase in cases thus far. Stocks are dropping along with gold. Although gold has outperformed the S&P 500, it will follow market moves in the short term. It's not something I fully understand, but you will see prices drop on pairs like these in the short term. During the crash, gold fell as much as 14%, and it will likely fall if the US market has a similar drop.

Conclusion

In all, if you are a gold bull, I wouldn't be too eager to get in right now. That key break in resistance is important, but in times of economic uncertainty, be wary of big price fluctuations in the near term. I think gold will become a safe-haven over the US dollar in time, but I'd have to wait and see what the market is going to do in the near future.

Featured Photo: https://responsive.fxempire.com/cover/1845x1230/webp-lossy-70.q50/fxempire/2020/06/Fine-Gold-Bar-2.jpg


Thanks for reading! If you are interested in joining our trading community, we have chat rooms, trade alerts from our top traders, and educational content. You can join using the link below, and get a discount on your membership.

Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

Get Alerts every time we take a trade!

Join The VIP Community!

Our entries, exits, & analysis
Live webinar coaching calls
Trading chatrooms
Strategy library
Use Code "READER" for $5 OFF!
Join Now

Need a Better Broker?

Bitcoin, Ethereum On Sale Again

9/24/2021 The People's Bank of China banned all crypto transactions on overseas Chinese services along with its domestic ban. Bitcoin is down over 8% today and Ethereum is down 11.48%. Our outlook I think we're seeing a lot of noise around China and their condemning of cryptocurrencies before they digitize their own. In the short […]

Read More
What's To Know After The BoE's Monetary Policy Summary

Let's look into the Bank of England's Monetary Policy Summary which took place on Thursday the 23rd of September, 2021. Quick Summary: BoE keeps interest rates unchanged at 0.10% BoE will maintain its asset purchasing target at £875B The vote to keep policy unchanged passed with a 7-2 vote The minutes of the MPC meeting […]

Read More
Is Gold A Buy Here?

9/23/2021 The precious metal snapped three days of gains and tumbled back down to the support range from $1740s-1760s approximately. Gold is down -.56% on the day going into the opening of the NY session. Our outlook Gold will likely rise on the US indices falling, and is usually due to slowing economic growth. Because […]

Read More
Bitcoin Goes On Sale- Golden Cross Opportunity

9/21/2021 Bitcoin Update For the past month, Bitcoin went on a tear rising over 20% from the beginning of August. Recently, however, China and other risk-off factors have contributed to a 23% decline from the recent highs around $52,760. Now the most prominent crypto has touched these monthly lows which could be a potentially good […]

Read More
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here

A1 Trading Company

A1 Trading Company is a financial services and media business founded in Atlanta, USA.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram