Gold: The Three-Factor Model You Must Watch
"No matter who you are, we are creatures of habit. The better your habits are, the better they will be in pressure situations"~ Wayne Gretzky.
Over the years, actively trading in all 27 major commodity markets and seeing countless bull and bear markets in the same underlying commodity, it is essential to spot the drivers to optimize trading results, which frequently takes a bit of detective work. Take corn as an example, in 2008, excessive rainfall and flooding drove prices from $5 a bushel in March to $7.50/bu in June, while in 2012, the great North American drought pushed corn even higher from $5/bu to $8.50/bu in just two months. During the housing collapse in 2008, gold hit its cycle low just below $700/oz in October 2008 before reaching an all-time high of $1920.30 in September 2011. In the current cycle, gold hit its low back in August 2018 of $1167.10, and there is no telling how high it will get this time.
In all four of these situations, you had to put each market under a microscope to navigate the twist and turns to find optimal entry points for accumulation of positions while using blow-off tops to take profits. During those corn years, we would use export inspections to buy weakness, crop progress in selling rallies and maintain core positions during USDA reports. With gold, the underlying "theme" has been that prices tend to slip on stronger than expected economic data because a rush into U.S. equities drives interest rates higher. Investors then realize that this stronger data is at the U.S. Dollar expense, which then declines driving real rates lower and inflation expectations higher, creating a new bid lifting the price of gold.
If you did not receive the new edition of our free "Gold Trends Macro Book," it has been updated with silver slides. This monthly updated booklet will provide you with all the quantitative analysis of the precious metals markets. You can request yours here: Free Gold Trends Macro Book.
WEEKLY S&P CHART
Since gold has not recently been in a bear market, I used the S&P 500 as an example for a trending bear market during the start of the pandemic. You will notice that prices bottomed once volume peaked; since then, we have seen continued elevated volatility leaving this market, not in the trending bull market but more of a dangerous market that could result in disaster.
Daily Gold Chart
Looking at the daily chart, since we are in a weekly bull market, the buying opportunities few and far between. We have found that the best entry opportunities have been when the breaking economic new happens on lighter volume day. We have been extensively covering the technical backdrop of the gold market in the Blue Line Futures Morning Express Research Reports so be sure to stay up to date on the developments by registering for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up
Good luck and good trading,
Chief Market Strategist
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Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.