Beware: Gold Could Hit Resistance

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With  all the hustle and bustle surrounding the gold market…

…would it make sense to you if I said that now may be the perfect time to go short?

I mean betting on the price going down.

I know this is super counterintuitive…considering the news that just came out. CNBC, for example, has suggested that gold could go higher.

A guy called Daniel Ghali is a commodities strategist at TD Securities. They’re a Canadian investment bank and financial services firm.

He said,     

We do think gold is on its way higher for the time beingOver the coming years as the likelihood of the unconventional policy becomes more of a reality, I could see a case for gold at $2,000.

I don’t agree. I believe US dollar gold (USD) has peaked for the time being. 

But let’s take a quick look at what caused gold to rally this year…

Gold surges on fear

Please note that all prices detailed from here on out are in USD.

The first reason for the gold rally is the US-China trade war.

Yes, I’m back at this story again.

It has been by far the most talked about topic this year. And as a result, it’s one of the main reasons why investors are flooding into gold.

And that’s not just me rambling, either…  

According to American news outlet VOA, investors ‘piled into gold, safe-haven yen and bonds on Monday over nagging concerns about a prolonged U.S.-China trade war.

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But the US-China trade war isn’t the only issue causing investors to freak.

There are also the recent Hong Kong protests, and now issues with Argentina…plus US$15 trillion in negative debt trading around the world.

Frank Holmes, CEO at U.S. Global Investors, summarised the dynamic perfectly:

Whenever you have an expanding economy and you drop rates in the U.S., it is very bullish for stocks. And if you have negative real interest rates, it’s very bullish for gold.

He then went on to say, ‘Gold and silver stocks are going to rip. And they’ve done that.

You’re probably wondering where I am going with this, given that I said it’s possible that gold may move lower.

Here’s the kicker to all of this…

Gold hovers at technical resistance point

When it comes to the gold rally, we need to ensure we don’t get caught up in confirmation bias.

That is where we find information that suits and supports our existing viewpoint.

This is a big problem, which is why I’m always looking to see other sides of every argument.

I also use technical analysis to look for key levels. That’s why I’m bringing your attention to gold right now.

Despite all the negative sentiment and news that could send gold soaring, take a look at the chart below…

Source: Optuma

What you’re looking at above is what I call natural support and resistance.

And I can guarantee you that I am not the only active trader or investor watching this.

Trading off these support and resistance lines is akin to a self-fulfilling prophecy.

That is, where enough active investors look at the exact same thing and bet on it happening all at the same time.

Right now, we have a red horizontal line that is resting on what we call a resistance point. The resistance point I’m referring to, on the left-hand side of the chart, is from 2012.

Can you see it?

It’s close to a perfect hit.

While everyone is calling for an explosive move now that gold has risen above US$1,500, I’m looking left to see how history can guide me.

Let’s just say that gold met some technical resistance. What then?

Just cast your eyes to the blue line, which is a support line. If gold does turn down, a price target around the $US1,350 mark wouldn’t be a crazy call…

As a trader, I always like to watch both sides of the equation. I’m a bull when I need to be and I’m a bear when I need to be.

This is how we separate our own opinions and emotions from the trade. I think you should do the same.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch

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