2024-08-13 - Wealth

Black Friday: Gold Ready to Shine

After days of oscillation in the gold market, a pivotal moment arrived yesterday as the price notably dipped below critical support levels. This event unfolded just ahead of the eagerly awaited non-farm payroll (NFP) data release, hinting at a fresh trend emerging for traders and investors alike. Early this morning, gold prices took a steep plunge, a movement that has undoubtedly bolstered the confidence of those who are positioning themselves for a downward trend. Market participants are now eyeing lower price targets, such as 2580 and 2550, suggesting that a bear market might be on the verge of commencing. Yet, the market's complexity reminds us that consensus among traders often precedes unexpected shifts; certainty in direction can breed volatility and reversal. What appears as an evident opportunity is not without its potential pitfalls. This does not imply an immediate recovery for gold prices, but rather indicates that the downward trajectory is fraught with uncertainty. It's plausible that a fleeting rebound might occur to lure in further short sellers before the real plunge begins. Alternatively, bullish forces may intervene, slowing down the decline and triggering a period of consolidation. Therefore, investors must be vigilant, analyzing market dynamics through a multi-faceted lens and exercising caution when forecasting future movements, avoiding a herd mentality at all costs.

This morning's drastic drop in gold prices from 2630 to 2613 feels conspicuously like a trap for speculative shorters. There is a significant presence of bearish traders, making it reminiscent of the Pareto principle where 20% controls 80% of the market's outcomes. Even if gold is predisposed to a downward journey, the metaphorical vehicle cannot accommodate everyone on this ride to glory; some traders must inevitably disembark. Yet when participants feel secure in their positions, few are willing to exit. Today's market may be a setup to encourage a subset of traders to abandon ship, testing their resolve and grip on their investments. It’s essential to remain clear-sighted and not to let momentary market fluctuations cloud judgment.

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Considering the combo of today's so-called Black Friday alongside the anticipation of NFP data, substantial fluctuations in gold are guaranteed. As traders, we must adhere strictly to our trading methodologies. Regardless of how alluring or convincing today's signals may be, any trades that do not align with one’s own strategies should be avoided. Understanding that today’s goal is not to realize significant profits, but rather to navigate the risks and contemporaneously secure minor gains is crucial; this is certainly not the time for one to gamble recklessly on short-term profits. This sentiment may seem almost elementary to seasoned traders, but a gentle reminder to new market entrants is warranted, as it serves as a foundational principle in trading.

Regarding predictions for tonight's NFP data, I will refrain from speculating. Firstly, recent data has diverged considerably from my analyses, and secondly, the non-farm payroll reports have shown irregularities far too frequently. For instance, last month’s figure of just 10,000 was a stark contrast to the 300,000 I had anticipated, a discrepancy of 30 times. Therefore, it's unwise to engage in prophetic endeavors prior to the data announcement. Instead, the market movements following the release will be of paramount importance.

Examining the four-hour candlestick chart reveals that gold had previously been trapped within the 2650-2636 oscillating range, a boundary which was successfully breached last night. The earlier support at 2636 has now flipped to resistance, and the new support level rests at 2621. Thus, today could see gold fluctuating between 2636 and 2623. From the four-hour perspective, 2623 has faced repeated testing without breaching, adhering to Gann's theory that prescribes an increasing likelihood of breaking through after multiple attempts. Notably, the MACD lines have slid into the negative region below the zero line following yesterday's drop, indicating a trend reversal towards a bearish market. The morning's aggressive decline seems to indicate a breach, yet the four-hour chart shows that it was merely a shadow pass below, with the body of the candle remaining intact. This suggests a false break, prompting a watch on the overhead pressure at 2636 and the underlying support at 2621 for potential shorting opportunities.