Originally published by AxiTrader
In trading, one should never run around in a panic.
Likewise, premature extrapolation of events and data into either euphoria or disaster should be avoided at all costs.
But as the, probably apocryphal, quote attributed to John Maynard Keynes goes - "When the facts change, I change my mind. What do you do sir?" It is also important to recognise a changed fact, or changed paradigm, when it happens.
And that is potentially what we are seeing right here and right now in global markets, economics, and politics.
It's causing uncertainty to rise and with that, the chance of gold busting back to $1360 possible even above $1400 is high.
Let me digress though for a minute to paint this picture of uncertainty.
White House economic adviser Gary Cohn resigned this morning and markets have gone into a bit of a funk. USD/JPY has dropped to 105.55, near recent lows, S&P futures are down around 1%, and the Aussie dollar has lost around 50 pips since the news.
Why?
My sense is that, as I tweeted after the announcement, "it's an adult thing I reckon... Mnuchin said he supports the tariffs last night, Wilbur Ross always ascendant, and Cohn leaving plays to globalists losing the fight at the White House".
And that adds to uncertainty about the market and economic outlook.
So at risk of over-quoting myself, here is what I wrote in Monday's Market's Morning, "Trump's tariffs, Xi’s lifetime leadership, and Russia’s belligerence on nuclear weapons potentially signaled a regime shift for markets. It’s not me just making it up though. My hypothesis is supported by Andrew W Lo’s notion of Adaptive Markets as I tweeted over the weekend.
Here's that tweet with the excerpt from the book.
Which brings me back to gold.
As a classic safe-haven gold has the potential to rally substantially if the market does go into a funk. That's the fundamental case.
The technical case is that having put in a spike bottom a couple of weeks back with a very long-tailed candle gold has walked higher and last night broke back above the little trendline it broke through before falling to the low in the $1,302 region.
XAU/USD has climbed above the 38.2% and 50% retracement levels and now sits at $1339 just a couple of dollars below the 61.8% retracement of the move from $1366 down to around $1,302. Should that 61.8% retracement level at $1341.89 give way then the chance of gold making a full round trip back to $1,366 grows.
If gold was to break above here then the 138.2% target of this move would be around the $1,389/90 region.
But if we view gold's recent price action as part of a consolidation in the move from $1,236 to $1,366 then the Fibonacci projection of a break of that level becomes $1,416.
Have a great day's trading.