In what has been a constant theme for this past week, conditions on the ground over in the Ukraine region have generated nervous safe-haven related buying in the gold market. With equities looking a bit wobbly, some investors are selling stocks and buying gold ( the reverse of what they had been doing for all of last year). Throw on top of the fact that the Dollar continues to be losing friends of late, and the path of least resistance for the yellow metal has been higher.
The strong finish to close out the week puts the market on really firm footing as we head into next week. The wild card, and the potential to be a big spoiler, is this weekend's referendum in the Crimea. If the votes goes as many expect ( with the region voting to become a part of the Russian Federation) and all hell does NOT break loose, there is a very good chance that gold will see a fairly substantial amount of selling come the reopening of trading Sunday evening here in the US ( Monday morning in Asia).
Geopolitical events, by their very nature, are incredibly volatile. As such, both buying and selling tied to these sorts of things is completely emotion driven. That means the losing side acts first and thinks later. All they know is that they are on the wrong side of a trade and their account balance is disappearing. So out they run. Volume tends to run quite high during such times.
What this means is very simple - you have a 50/50 chance of getting it right as a trader when dealing with geopolitical events. I personally will NEVER trade those odds. Why not just hit the casino and roll the dice because that is about the same set of odds. Traders deal with favorable probabilities based on technical analysis. If you want to test your luck, try picking up some out of the money put or call options depending on your perspective and roll the dice on those. At least you know what the extent of your losses is going in while leaving the upside open for some good profits if you happen to hit it right.
I do wonder however with all the hype about massed troops on the border, Western sanctions, deadlines, etc. whether or not the gold market has already factored in most of those expectations. If things disappoint in the sense that WWIII does not break loose, I would expect to see the selling show up. If the conditions worsen, then gold will move higher as it factors in another and more dangerous scenario.
That is how markets work. They anticipate events ( that is why it is called a "FUTURES" market and not a PAST or a PRESENT market. If the events materialize within expectations, more often than not you get a case of "Buy the Rumor; Sell the Fact". If the events do not unfold as expected, then the reactions can be quite severe, either up or down depending on the particular turn of events and how it is being interpreted by players.
What I can say is that traders of both persuasions when it comes to gold ( bull or bear) had better have some very light and very fast trigger fingers come Sunday evening. They might just need them.
Here is the weekly chart for gold. This week's performance was a real doozy of a show put on by the bulls. I have included the note I put on this same chart earlier this week which stated that if they could close the week over the resistance zone noted, ( $1,350 - $1,355) they have a real shot at reaching psychological resistance at the $1,400 level. They did just that!
Again, the move has been predicated on fear/concerns over that situation in Ukraine ahead of this weekend's big vote so just be prepared because all of this could evaporate if the world does not end come Sunday evening. The obvious flip side - If tensions remain high, so too will the gold price remain supported.
Looking at the technical levels on the chart you can see a couple of things here - the first is that the ADX line is beginning to flatten out. That is suggesting that the sideways action ( on an intermediate term basis the market has merely been moving in a sideways range between $1180-1200 on the bottom and $1425 or so on the top) could be coming to an end and that the POTENTIAL ( please note the use of the word) exists for this broad consolidation pattern to be coming to an end being replaced by a trending move higher.
That spike high near and around the $1,425 level would need to be taken out to shift this particular indicator that I favor into a trending mode. If it were to do so, one could easily make the technical case that a move back up to retest the broken FORMERLY MAJOR SUPPORT near $1,525 is reachable.
The Dollar's action would of course be key to this as well for if it cannot stay above 79 on the USDX chart, I do not believe gold will fail at the $1425 level. Any weakness in the Dollar of that nature would send a lot of strong speculative inflows into gold and those should be enough to better that spike high.
Again, let's see how events unfold over the weekend.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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