Forex markets and especially sterling will likely be volatile as the week begins. As well, expect gains across all markets to slip, as optimism over the prospect of a Brexit deal between the UK and EU—touted by UK Prime Minister Boris Johnson late ...
Forex markets and especially sterling will likely be volatile as the week begins. As well, expect gains across all markets to slip, as optimism over the prospect of a Brexit deal between the UK and EU—touted by UK Prime Minister Boris Johnson late last week as a virtual certainty—fades, after the British Parliament deferred Saturday's vote in order to have more time to study the details.
As a result, Johnson was forced by law to request an extension from the EU, after repeatedly vowing he would not do this. European Council President Donald Tusk will discuss the request with EU leaders, while Johnson plans to try and push the deal through at his end.
With so much progress on the Brexit front occurring over the past few weeks, it’s of little surprise that the British Pound has been able to carve out space as the top performing G10 currency thus far in October. Gains across the board last week allowed the British Pound to further pad it’s already impressive run this month.
GBP/JPY is now the top-performing GBP-cross, having gained 5.28% through the close on Friday, October 18. GBP/USD is close behind, up by 4.95%, while GBP/CHF has rallied by 3.71%; three of the top four performing GBP-crosses in October are the safe haven crosses.
Aside from Brexit, British Pound Economic Data Proving Steady
The forex economic calendar will produce little waves for the GBP-crosses over the coming days, keeping market participants’ collective attention on the news wire for the latest Brexit deal updates. But in general, UK economic data has stabilized in recent weeks, after a strong run through the end of the summer.
WHAT HAPPENS TO THE BRITISH POUND: NO DEAL, HARD BREXIT
Under a no-deal, hard Brexit outcome, traders should expect further losses by the British Pound, with EURGBP likely to trade closer to parity (1.0000), GBP/JPY could trade towards 120.00, while GBP/USD could fall towards 1.1000 during the first 1-3-months of a no-deal, hard Brexit (keeping in mind that the European Central Bank and Federal Reserve would likely cut interest rates to prevent Brexit shocks from impacting either the Eurozone or US economies too significantly, thereby capping potential gains by the Euro and the US Dollar versus the British Pound).
WHAT HAPPENS TO THE BRITISH POUND: DEAL
Under an outcome that produces a Brexit deal, there may be further scope for recovery by the GBP-crosses. EUR/GBP is likely to trade closer towards 0.8300, GBP/JPY could trade towards 145.00, while GBP/USD could rally towards 1.3600 during the first 1-3-months of managed Brexit (keeping in mind that the European Central Bank and Federal Reserve would be less likely cut interest rates to prevent Brexit shocks from impacting either the Eurozone or US economies too significantly, thereby limiting potential losses by the Euro and the US Dollar versus the British Pound).
The positive momentum in the Euro continues to build with the currency seeing its third consecutive and largest weekly gain since June. With the currency breaking out of its 3-month downtrend channel, this further suggests to us that 1.0879 is the interim low.
Alongside this, given the recent close above the September 13th high at 1.1110, this raises scope for a move towards the 200DMA at 1.1210 with the 50% Fibonacci retracement of the 1.1570-1.0879 drop just ahead at 1.1224. That said, with the relative strength index edging towards the overbought territory, which in turn may see further upside begin to slow.
Much of the initial focus however, for major USD pairs will be on the historic Brexit vote over the weekend and given the binary nature of the vote, this will dictate the short-term direction for the pair. As such, if Boris Johnson were to fail in getting his deal through parliament, this could see EUR/USD fall below the 1.1100 handle eyeing a test of the 50DMA at 1.1036.
The forexfactory economic calendar this week is busy but with only a few top line releases for traders to look at. The release of the latest Federal Reserve Beige Book next Wednesday will probably be the most important event of the week in the forex market.
Taking a look at EURUSD’s daily chart, the first meaningful technical cue for a reversal was secured through Friday’s session. The pair clear the top of a descending channel that has guided the benchmark pair lower since it peaked in late June. That is appealing – as is the DXY Dollar Index’s slip which is the mirror of this chart – but there are more than a few technical barriers still immediately overheard. The 50-day moving average still stands at roughly 1.1050. The 38.2% Fibonacci retracement of the June to October bear wave is a little higher at 1.1080. And, we haven’t even set a new higher swing high. Each of this milestones may be reached ahead, but bullish conviction should be held loosely until some of these markers are passed.
When looking at EURUSD, there is a conflict between the belief that bearish gravity may have taken over because we have already traded at multi-year lows this month, but the tempered pace raises arguments that it is instead stretched. With regards to the hold below the 50-day moving average, Friday’s close increased the consecutive days that we have traded below the average to 61 trading sessions. That is the longest period of technical bearish course since July 2015 when the exchange rate was at the end of a record-breaking collapse. This slide is far more restrained in pace and that adds to the sense that a close above may be ‘overdue’. Then again, previous jumps above the charge pattern were short-lived.
Let’s look at three ways on how you would analyze and develop ideas to trade the market. There are three basic types of forex analysis:
There has always been a constant debate as to which forex analysis is better, but to tell you the truth, you need to know all three. It’s kind of like standing on a three-legged stool. If one of the legs is weak, the stool will break under your weight and you’ll fall flat on your face.
The same holds true in forex trading. If your forex analysis on any of the three types of trading is weak and you ignore it, there’s a good chance that it will cause you to lose out on your trade!
Technical analysis is the framework in which forex traders study price movement.
The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.
The main evidence for using technical analysis is that, theoretically, all current market information is reflected in price.
If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Now, have you ever heard the old adage, “History tends to repeat itself“?
Well, that’s basically what technical analysis is all about! If a price level held as key support or resistance in the past, traders will keep an eye out for it and base their trades around that historical price level.
Technical analysts look for similar patterns that have formed in the past and will form trade ideas believing that price will act the same way that it did before.
In the world of currency trading, when someone says technical analysis, the first thing that comes to mind is a chart.
Technical analysts use candlestick charts because they are the easiest way to visualize historical data!
You can look at past data to help you spot trends and patterns which could help you find some great trading opportunities.
What’s more is that with all the traders who rely on technical analysis out there, these candlestick patterns and indicator signals tend to become self-fulfilling.
As more and more forex traders look for certain price levels and chart patterns, the more likely that these patterns will manifest themselves in the markets.
You should know though that technical analysis is VERY subjective.
Just because Ralph and Joseph are looking at the exact same currency chart setup or forex indicators doesn’t mean that they will come up with the same idea of where price may be headed.
The important thing is that you understand the concepts under technical forex analysis so you won’t get nosebleeds whenever somebody starts talking about Fibonacci retracement, Bollinger bands, moving averages, harmonic patterns or pivot points.
Fundamental analysis is a way of looking at the forex market by analyzing economic, social, and political forces that may affect the supply and demand of an asset.
The best way to do this is to follow the news released on the forexfactory economic calendar.
If you think about it, this makes a whole lot of sense! Just like in your Economics 101 class, it is supply and demand that determines price, or in our case, the currency exchange rate.
Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all of the factors that affect supply and demand.
In other words, you have to look at different factors to determine whose economy is rockin’ like a Taylor Swift song, and whose economy sucks.
You have to understand the reasons of why and how certain events like a decrease in the non-farm payrolls (NFP) affects a country’s economy and monetary policy which ultimately, affects the level of demand for its currency.
The idea behind this type of analysis is that if a country’s current or future economic outlook is good, their currency should strengthen.
The better shape a country’s economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country’s currency to obtain those assets.
In a nutshell, this is what fundamental forex analysis is:
For example, let’s say that the U.S. dollar has been gaining strength because the U.S. economy is improving.
As the economy gets better, raising interest rates may be needed to control growth and inflation.
Higher interest rates make dollar-denominated financial assets more attractive.
In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first. As a result, the value of the dollar will likely increase.
Later on in the course, you will learn which economic data points tends to drive currency prices, and why they do so.
You will know who the Fed Chairman is and how retail sales data reflects the economy. You’ll be spitting out global interest rates like baseball statistics.
But for now, just know that fundamental analysis is a way of analyzing the potential moves of a currency through the strength or weakness of that country’s economic outlook. It’s going to be awesome, we promise!
Earlier, we said that price action should theoretically reflect all available market information. Unfortunately for us forex traders, it isn’t that simple.
The forex market do not simply reflect all of the information out there because traders will all just act the same way. Of course, that isn’t how things work.
This is why sentiment analysis is important. Each trader has his or her own opinion of why the market is acting the way it does and whether to trade in the same direction of the market or against it.
The market is just like Facebook – it’s a complex network made up of individuals who want to spam our news feeds.
Kidding aside, the market basically represents what all traders – you, Warren Buffet or Celine from the donut shop – feel about the market.
Each trader’s thoughts and opinions, which are expressed through whatever position they take, helps form the overall sentiment of the market regardless of what information is out there.
The problem is that as retail traders, no matter how strongly you feel about a certain trade, you can’t move the forex markets in your favor.
Even if you truly believe that the dollar is going to go up, but everyone else is bearish on it, there’s nothing much you can do about it (unless you’re one of the GSs – George Soros or Goldman Sachs!).
As a trader, you have to take all this into consideration. You need to perform sentiment analysis.
It’s up to you to gauge how the market is feeling, whether it is bullish or bearish.
Then you have to decide how you want to incorporate your perception of market sentiment into your forex trading system.
If you choose to simply ignore market sentiment, that’s your choice. But hey, we’re telling you now, it’s your loss!
Being able to gauge market sentiment aka sentiment analysis can be an important tool in your toolbox.
Ahhhh, the million dollar question….
Throughout your journey as an aspiring forex trader you will find strong advocates for each type of forex analysis.
Do not be fooled by these one-sided extremists! One is not better than the other…they are all just different ways to look at the market.
At the end of the day, you should trade based on the type of forex analysis you are most comfortable and profitable with.
To recap, technical analysis is the study of currency price movement on the charts while fundamental analysis takes a look at how the country’s economy is doing.
Market sentiment analysis determines whether the market is bullish or bearish on the current or future fundamental outlook.
Fundamental factors shape sentiment, while technical analysis helps us visualize that sentiment and apply a framework to create our trade plans.
Those three work hand-in-hand-in-hand to help you come up with good forex trade ideas.
The Dow Jones and Nasdaq 100 have an important week ahead of them with a heap of upcoming earnings from some of the country’s largest and most influential corporations. Ranging from Chipotle to Lockheed Martin, the quarterly results ...
The Dow Jones and Nasdaq 100 have an important week ahead of them with a heap of upcoming earnings from some of the country’s largest and most influential corporations. Ranging from Chipotle to Lockheed Martin, the quarterly results can potentially offer significant influence over the indices as 40% of Dow Jones components are slated to report. Consequently, the Industrial Average and the tech-heavy Nasdaq will look to ride the euphoria – or despair – brought about by each report.
Though U.S. corporate earnings thus far have been relatively upbeat, after Morgan Stanley (NYSE:MS) on Thursday became the latest big bank to buck concerns about weak growth, technicals on U.S. indices increased chances of topping out.
Also, economic data flipped negative once again. U.S. retail sales disappointed, and the International Monetary Fund (IMF) lowered, yet again, its projections for global growth this year from 3.5% to 3%. Traders will also be mulling the data from China, released early Friday, which showed GDP had slowed to 6% in the third quarter, with limited pick-up from domestic demand, but factory output had improved and retail sales held up.
Week ahead: stock technical and fundamental analysis (Dow Jones Industrial Average - DJI30 Forecast)
Last week, the U.S.'s third quarter earnings season kicked off, with major banks reporting mostly solid earnings versus depressed investor expectations, leading the group and most U.S. benchmarks, higher. Overall, U.S. equities eked out gains on a weekly basis but fell Friday with Boeing (NYSE:BA) plunging -6.79% on additional bad news for the U.S. aerospace giant. Microsoft's (NASDAQ:MSFT) losses on Friday allowed Apple (NASDAQ:AAPL) to take back the lead as the world's most highly valued company.
While earnings results and the corresponding price reactions are nigh impossible to predict, it would be presumptuous to argue against the Dow Jones when traders have pushed it to such levels. Admittedly, the Industrial Average has a laundry list of concerns, but price suggests the market is comfortable in dispelling those concerns in exchange for fresh all-time highs. In pursuit of those heights, the Dow Jones will look to earnings from Boeing, Caterpillar, 3M, Microsoft and other major components in the week ahead for an extra jolt to get across the finish line.
On a stock-specific basis, Caterpillar should be watched closely for insight into the status of global construction, often apparent in the company’s machine orders by region. An abrupt slowdown in purchases in emerging markets, particularly China, could erode investor confidence and ignite global recession fears. Thus, Caterpillar has the potential to have an impact on the Dow Jones beyond the fluctuations in its own share price. Another such company is Microsoft.
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Technically, Friday’s trading erased four days of advances, on the highest volume since Oct. 2, when the index dropped 1.8 percent, after nearing record highs. For the week, the Dow retreated 0.2%.
Stock technical analysis is signaling more sideways movements in the markets, with DJI30 showing a large symmetrical triangle on the Daily chart. A breakout should bring a fast move up (exhaustion rally?), while a breakdown a fast sell of.
The NASDAQ Composite slumped -0.83% at the end of the previous week, with Microsoft (-1.63%) leading tech firms lower. Technically, the price neared the neckline of a potential H&S top, whose development was accompanied by falling volume.
The world’s largest publicly traded company by market cap is scheduled to report on Wednesday, in an event that could significantly sway the Nasdaq 100. Mega-cap companies like Microsoft and Apple have become synonymous with the broader market by some investors – due to their weighting on the index and vast supply chains – and have been known to impact other markets. One such instance was the USDJPY flash crash early this year when Apple revised its quarterly outlook lower.
Evidently, market participants have afforded these companies significant influence which is partially why next week could prove to be a crucial moment for the US stock market. Alongside Microsoft, other tech companies like Amazon, Intel, Snapchat, Twitter and Texas Instruments are due to report. Each will offer insight into their unique corner of the tech industry, but their combined performances will likely decide the overall direction of the stock market’s reaction. If the first week of earnings was any indication, the season could prove to be a bullish catalyst, delivering the spark needed to drive the indices to new highs.
Politics remains the key driver for risk assets. Rising optimism pertaining to US-China trade talks and Brexit negotiations have lifted equity markets to close the week on a high note. However, while optimism have buoyed risk sentiment, we ask ourselves the critical question of “deal or no deal?”.
In the event-driven backdrop, the S&P 500 has recovered from its recent drop as markets investors grow increasingly optimistic over a potential interim trade agreement between the US and China. If indeed an agreement is found, the S&P 500 would likely see a topside breach of the 3000 level with further buying in the index extending throughout the week.
News, again, drives the US stock market and major stock indexes higher as optimism of a US/China trade agreement floods the news wires. As we’ve been suggesting, the global markets continue to be news-driven and are seeking any positive news related to easing trade tensions and capital markets. We believe any US/China trade deal would be received as very positive news by the global capital markets – yet we understand the process of achieving the components of the “deal” would likely still be 6 to 24 months away.
Still, with the strength of the US economy and the potential that some deal could be reached before the end of 2019 setting positive expectations, the US stock market and major indexes rallied the last week.
Our research team wants to highlight some very key elements related to stock technical price theory and technical analysis. The weekly charts highlight what we believe is “key resistance” in the US major indexes and share our research team’s concern that the markets may be reacting to news more than relying on fundamental economic and earnings valuations.
Stock analysis is the method used by a trader or investor to examine and evaluate the stock market. It is then used to make informed decisions about buying and selling shares. Stock analysis can also be referred to as market analysis, or equity analysis.
Stock analysis can be used to gain an insight into the economy as a whole, the stock market, a specific sector or an individual stock.
Stock analysis is based on the idea that by studying market data from the past and present, traders can create a methodology for choosing which stocks to focus on, as well as a way to identify entry and exit points for their trades.
There are a few steps to follow if you want to pick stocks using fundamental analysis. Firstly, keep in mind that fundamental analysis for stocks centres around estimating a stock’s intrinsic value. This means you should analyze both qualitative and quantitative aspects of the economy, industries within the economy and the individual companies that make up the industry.
News relating to the company you’re looking to invest in can cause stock prices to rise or tumble. This is because good news often causes individuals to buy stock, while bad news causes them to sell the stock. This affects supply and demand and, ultimately, the share price.
Personnel changes, including management restructures, are extremely relevant to those looking for stocks, because it affects the market’s perception. The business’s reputation could be affected by any personnel changes, which has a direct impact on stock prices.
It’s important to take note of financial events when picking stocks, as these can cause market uncertainty and heightened volatility. Forexfactory Economic Calendar events include interest rate decisions, scheduled changes in management, and large-scale events such as Brexit.
Traders and investors should keep a close eye on changes in company earnings as part of their fundamental analysis. If company earnings drop and the share price does not adjust to the new earnings level, the stock price might not reflect true value.
A company’s balance sheet will list all its assets and liabilities. A stronger balance sheet generally means a strong stock price, because it reflects earnings potential. As mentioned, earnings also directly affect stock prices.
Dividends are a portion of a company’s profit that it chooses to return to its shareholders. They are one of the ways a shareholder can earn a passive income from a stock investment without having to sell shares. You could use dividends as a deciding factor when choosing stocks, because they indicate that the company is profitable and that there is a good possibility of future earnings.
Qualitative factors can be measured by means of various ratios. Fundamental analysis ratios include:
- Price-to-earnings (P/E) ratio, which measures a stock’s value by showing you how much you would have to spend to make $1 in profit. P/E ratio assists in comparing the value of one stock in a sector with another. It can also be used as a guide to determine whether a company is currently overvalued or undervalued compared with its historical averages
- Debt-equity ratio (D/E), which measures a company’s debt against its assets and gives you insight into how the company is performing relative to its competitors. A low ratio could mean that the company gets most of its funding from its shareholders. It’s important to note that a ‘good’ or ‘bad’ ratio depends on the industry
- Return on equity (ROE), which measures a company’s profitability against its equity, expressed as a percentage. It shows you if the company is generating enough income by itself relative to the amount of shareholder investment
- Earnings yield, which measures earnings by dividing the earnings per share (EPS) by the share price. Earnings yield is also a value indicator – the higher the earnings yield, the more likely it is that stocks are undervalued
- Relative dividend yield, which measures a company’s dividend yield compared to that of the entire index. If you’re looking to buy stock, you should consider the relative dividend yield because it can show if stocks are overvalued or undervalued compared to competitor stocks
- Current ratio, which measures a company’s ability to pay off debt. It shows if liabilities can be adequately covered by the available assets. There is a link between this ratio and the stock price. The lower the current ratio, the higher the likelihood that the stock price will continue to go down
- Price-earnings to growth (PEG) ratio, which measures the P/E ratio compared to the percentage growth in annual EPS. If you are deciding on which stocks to pick, you should consider the PEG ratio because it could give you an indication of the stock’s fair value
- Price-to-book (P/B) ratio, which measures the current market price against a company’s book value. A ratio higher than one often indicates overvalued shares
Technical analysis for the stock market is completely different from fundamental analysis – when picking stocks using technical analysis, you should focus on the stock’s price data and movements. This includes trends and patterns that may indicate the future movements of the market. There is a wide range of technical indicators you can use when conducting technical analysis. Your chosen technical strategy will ultimately depend on your trading style.
The outlook for gold next week is neutral with the precious metal (XAUUSD) expected to remain rangebound as markets swing gently from risk-on to risk-off. There are a number of conflicting forces are in-play currently with no single driver gaining the upper hand.
The US dollar has been weakening over the last 3 weeks, off its highest level since May 2017, as traders’ price in further interest rate cuts in 2019 with a 0.25% cut nearly fully priced in for this month. A weaker US dollar is normally a positive driver for gold fundamentals, but this has not been the case for the last few weeks with the inverse-correlation between the two asset classes seemingly broken for now. A weaker USD makes gold cheaper to buy for investors.
US-China trade talks continue with US officials saying that both sides are working on ‘phase one’ of a trade deal text with President Trump and Chinese President Xi Jinping expected to meet next month to hopefully sign off on the deal. Any cessation of the 15-month old US-China trade war would be met by a boost to riskier assets, to the detriment of gold any other safe-haven asset classes.
The long-running Brexit saga may well be coming to a close this weekend with the UK parliament voting on whether to ratify a newly agreed deal between the UK and the EU. The vote is expected to be very close and if UK PM Johnson is successful in getting the bill passed, riskier assets will again get an uplift. If the deal is not agreed, it is likely that the UK will have to seek an extension to the October 31 Brexit date, adding risk back into the market.
The recent state of uncertainty in risk markets is showing in the price of gold with the precious metal stuck in a symmetrical triangle or pennant inside a descending channel and nearing a breakout. While this formation normally precedes a break higher, the 20- and 50-day moving averages are acting as short-term resistance and cloud the outcome.
This confluence of uptrend and downtrend is usually seen as a continuation formation. That means that the market should resume its previous motion once the pattern plays out. In this instance, however, it’s quite hard to see a clear trade signal right before the pennant began to take shape. At the margin, however, it looks as though the gold price looks set for more gains after this a-b-c correction.
Gold prices edged higher amid ebbing optimism about a Brexit breakthrough. That cooled risk appetite and nudged yields lower, bolstering the appeal of non-interest-bearing alternatives. Skepticism about would-be signs of progress in US-China trade negotiations likewise soured sentiment.
GOLD PRICES MAY STRUGGLE TO CAPITALIZE ON GLOBAL GROWTH FEARS
Looking ahead, headline flow shaping bets on whether a Brexit deal can be done before Thursday’s EU leaders’ summit will compete for attention with broader guidance on the ongoing global slowdown. The IMF and the World Bank are set to start their annual meeting and publish updated forecasts. A downbeat take is likely after leading PMI data showed output growth matched a three-year low last month.
Third-quarter corporate earnings reports from JPMorgan, Goldman Sachs and Citigroup may likewise jump into the spotlight. The top lenders have a front-row seat on US financial conditions, which have been tightening since early May despite the Fed’s various easing efforts (rate cuts, repo interventions, asset purchases). They may reiterate that this speaks to acute worries about where the economy is heading.
Gold prices are still trying to confirm a choppy Head and Shoulders top after breaking five-month rising trend support. A daily close back below the 1480-84.63 zone targets the 1439.14-46.94 area thereafter. Initial resistance remains in the 1520.34-35.03 zone.
While all of this might push prevailing sentiment into risk-off territory again as the day wears on, it is unclear that gold prices have the wherewithal to capitalize. There seems limited scope to price in a much more dovish Fed outlook than is already assumed by investors while a swelling premium on liquidity could boost the US Dollar the metal’s expense.
The XAUUSD refers to the price of 1 troy ounce of gold in terms of the US dollar. Over the years, gold has remained an attractive commodity due to its store value, beautiful appearance, and malleability. Many investors consider gold as a safe haven instrument that buffers them against inflation in times of recession and financial crisis. This is due to its ability to increase its value in times of volatility and economic uncertainty.
Trading gold in the foreign exchange market or forex market is a great way for investors world over to diversify their portfolio through the use of futures contracts and derivatives. Traders seeking to trade spot gold need to gain a good understanding of some of the factors that have an impact on the XAUUSD pair, including the supply and demand, US dollar risk, current events, and market speculations. The most common benchmark for pricing the majority of gold products and derivatives has been the London Gold Fixing.
In this section, some simple examples will be given in order for traders to understand how a trade works and how to calculate profits and losses manually. The MetaTrader 5 trading software which is used at AM Broker includes a full back office function that makes it easy for the trader to appreciate the value of open positions as well as the profit and loss of closed trades.
|XAU/USD||(Spot Gold vs ...|
|XAU/USD||(Spot Gold vs. US Dollar)|
In order to buy or sell 1 contract (standard lot) of Spot Gold clients require a minimum of 800 USD in their account. When this is the case no maintenance margin will be applied to standard accounts. AM Broker offers monitoring the stop out level in real-time and the platform automatically closes all positions at 30% stop out level (Equity/Margin). AM Broker offers negative balance protection which means in an event where the account's equity becomes negative due to the stop out, the company will not demand for the debit balance, thus guaranteeing your risk is limited.
Buy 5 XAUUSD at 1750.30 | Sell 5 XAUUSD at 1758.80
Buy 5 XAUUSD at 1652.5 | Sell 5 XAUUSD at 1646.7
There are no set rules in the capital markets. For example, normally we expect gold prices to move inverse to the dollar and to be correlated with currencies like the Australian dollar. There are a lot of trading strategies built around these “normal” relationships. However, that is not what is happening to gold right now. What is wrong and what can traders do about it?
There are many factors that affect the supply and demand for gold. It is a shelter against inflation and will typically rise in prices when the USD is inflating or falling in value compared to other major currencies. Like most commodities, it can also rise in price during economic expansions and will often decline during contractions with other commodity prices.
However, gold is also a hedge against uncertainty. It is what is often called a “store of value.” Assets that qualify as a store of value include a few commodities and some currencies, particularly the USD. Store of value assets will rise in value as demand picks up during economic crises. That is the situation the world is about to deal rather sooner than later.
Both the US dollar and gold are widely recognized and utilized “store of value” assets and as uncertainty increases in 2019, the value of the USD is likely to continue increasing in tandem with gold. This means that traditional analysis might be much more unreliable than expected.
The outlook created by the fundamental analysis of the gold market remains strong with the growing uncertainty in the world economy and rapidly expanding money supply. As governments try to cope with financial turbulence, they print more and more fiat money (money that is not backed with material assets). This fuels inflation that eats away government bonds yields. If the yields themselves are lower than the inflation, then you actually lose purchasing power by holding these bonds. In such a situation, investors switch to assets they believe will allow them to preserve their wealth. Gold is precisely one of such assets.
With the demand for gold growing both thanks to the demand for jewelry and thanks to the free exchange of information over the Internet, there is no technical possibility to satisfy the demand with both the existing and the anticipated gold supply. All of this suggests that gold is on its way up for the long term.
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