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Golds Losing Its Glitter

Mark Shawzin
October 21, 2020

Let’s start off this week by looking at the pair I feel offers the most opportunity going into next week: gold!

In this chart I'm looking at XAUUSD (spot gold):

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This is the weekly timeframe (each bar describes the price action for one week) so we get the big picture for gold’s price action: the yellow metal has soared from $1,350 to almost $2,100.

Since then, it’s been fading away in fits and starts. However, I think there’s still more room to go on the downside.

This is evident with the symmetrical triangle: ever since gold made a new high, it’s made only lower highs every subsequent week. A symmetrical triangle is a neutral price pattern. That means prices can break out to continue the trend (upwards) or reverse and go in the other direction.

What I’m seeing on other timeframes suggests the next move is likely to be down. I’ll show you a daily chart in just a moment.

But before I do that, on the weekly chart there are numerous bearish key reversals within the triangle. That’s where the price made a new high but closed on the low. Gold is now contracting into a tight range with several narrow range bars.

Those bars suggest a large opportunity once gold breaks last week’s lows. Any such breakdown should open up further price discovery to the downside. I think we’re going to see a drop back to the breakout level around $1,750.

A quick note before I go to the daily chart: traders outside the US can trade XAUUSD as offered by your non-US forex broker.

But in the United States, that instrument isn’t available. Some years ago, US authorities banned spot gold and spot silver trading, perhaps as a way to protect the futures industry. Now I don't know for sure what these regulators had in mind, but the end result is that XAUUSD (or XAGUSD) isn’t available through your currency broker in the US.

That means you have to trade gold on the stock market through a ticker symbol such as GLD (a gold ETF) or you can open up a futures account to trade gold.

Now onto the daily timeframe, where it becomes more obvious that gold is starting to lose its glitter:

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After bolting to a high at almost $2,100, gold has been sequentially making lower lows and lower highs. It’s traced out a variety of bearish patterns.

There’s a descending triangle here — at the very least there should be a retest of the common low at $1,850. From there gold could bounce and then descend once again in a sawtooth fashion before a further break below that triangle.

What would negate this bearish view is a situation where gold can’t drop to $1,850 and instead begins pushing above the triangle’s trendline, but so far this hasn’t happened.

For now I’ll assume a retest of $1,850 is on the way, especially when I’m also seeing a small head and shoulders forming. The neckline of that head and shoulders is about $1,889. So any thrust through $1,889 should quickly lead to a decline to $1,850.

From there, we’d likely see a bounce before XAUUSD then plunges out of the triangle and down to $1,750.

So I think there’s a tremendous opportunity on the downside coming in gold. Watch the price levels I’ve highlighted and be ready to act.

Now if gold is going down, then how about the US dollar?

USDI (the US Dollar Index) tracks the behavior of the dollar against a half dozen of the most liquid currencies. It’s my belief that USDI has put in a major top, but that doesn't mean we're going to get an immediate decline.

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In fact, based on recent price behavior starting with a bullish key reversal a few weeks ago, USDI might still have a bit of room to the upside.

That key reversal is still pointing the way for slightly higher prices in USDI over the coming days and weeks.

Of course, the head and shoulders top still implies that UDSI is going lower over the long term. But for now, it’s treading water at or near the neckline of that pattern. There could be another retest of this neckline (even a short incursion above it), before USDI turns lower once again.

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  • Which gold instruments to trade if your FX broker doesn't offer XAUUSD (applies only to US-based traders)
  • Where the US dollar's headed in both the short term and the long term … and why (starts at 6:49)
  • Which 3 USD-related pairs should be affected most in the next couple of weeks
  • The key USDJPY price levels to watch, and where JPY looks to be going in general (begins at 13:20)
  • Where GBPAUD is most likely to go, plus a tool to help you manage the volatility risks (watch from 19:49)
  • What GBPNZD and GBPAUD have in common (most traders do nothing but lose on these pairs because they don’t understand this)
  • Is silver about to move? I explain why I think it's ready to re-rate and assign a price target (from 26:08)
  • How to play the emerging double top in this key US stock index right now
  • Plus much more!

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