With the big drop on the Gold price last Thursday, April 4th, an obvious Symmetrical Triangle pattern has been significantly crafted out (see Chart A). This pattern formation is telling investors mountain of information about market direction that is seemingly heading. Symmetrical Triangle pattern of a security indicates that the underlying is about to break up or break down. However, gold futures chart as shown in chart A has a breaking down bias than a breaking up projection.
As explained in my previous blog, Fed interest rate and equity market are the two significant factors affecting gold price movement. With recent development of the “patience” mood of the Fed for rate hike, the dollar’s bullishness could be halted for awhile and move within the blue side way channel lines until further changes (Chat B). However, recent development of the failed Brexit event could stir some outflow of Euro investor to look for USD as haven and could possibly push the value of the dollar for the bullish recovery. If this happens, gold price will go breaking down bearishly.
Near Term Direction for Equity Market
As for the equity market, trade dispute settlement between China and US has been positively priced in the past few months and expected to deliver within weeks. That’s the reason why gold is positioned down trend bias temporarily because it assumes equity market will resume its bullish recovery as soon as this major trade dispute resolution materializes.
Another interesting and could be the most significant event all investors are eyeing currently could be the first quarterly corporate earnings report starting from this week till the month of May. Here is the reason why gold price movement reluctant to go bullish, neither bearish. It is most probably waiting for the confirmation of analyst’s projection of the fating effect of the corporate tax cut. However, if all market analyst has lowered their expectation for the first quarter corporate earnings report, when the real earnings report come out later might still beat above their gauge. In this case, the US market economic health is most probably confirmed strong and healthy as ever before.
Most US equity markets are now positioned themselves near their historical heights just an inch away. It is easy for them to have a break up above historical heights any time whenever they see earning reports are beyond their expectation. Only significantly poorer results can pull equity market down to where they were months ago.
Looking at the negative mood of most market analyst and those already available data, this poorer result can be possibly unachievable. Equity market could possibly create another breakthrough to higher heights unless major reports come out disappointing.
If all corporate earnings report came out were merely neutral or positive, gold’s fate will not be that promising for the time being. However, gold investor should not run for the exit door so soon. There are still other developments not firmly certain as it should be.
First, the European Union is suggestively planning to avoid the force exit of Britain for the sake of self-help for the union economy themselves by extending the negotiation period. But of course, the longer it dragged, the more uncertain the EU economy future will be. It does more harm then good too. If the EU economy is going downhill, the global economy will be pulled along.
Secondly, if the US first quarter corporate earnings report has passed the test, there will be a few more hurdles in the future. Even if equity market can create new heights, but in the environment where the lack of market catalyst behind the scene, the bull will quickly run out of steam.
Thirdly, other trade war measures are still in place. The effect will certainly rise to the surface sooner or later. Therefore, room for the upside market run is also limited.
Gold players are nevertheless advised to have a long period of strategic holding plan for at least 1 year from now on. Whenever there is a drop, instead of fearfully running away, we should be glad to have better windows of opportunity to top down cheaply. Along this one year’s time, new development, economic data twists and turns are more concrete and certain. There’s still hope that gold will still have its central stage when that time comes.
Happy investing but invest safely!
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.