Please note, that this article comes from my archive. Check the actual date in the header.
Everyone who reads our weekly outlooks and market updates have noticed that we were bearish on GOLD and SILVER last three weeks. As you can see from the charts, we were against the trend. Such a “sell-highs” tactics gave as good profits despite the uptrend in these precision metals. Our main argument was a divergence between strong economic fundamentals, sustainable trend in worldwide equities and growing prices of financial safe havens like GOLD. Usually the price of GOLD goes down when we see strong economic growth. So there is a hidden factor which drives precision metals up. And the factor is political concerns which come out from the biggest economy in the world - USA.
Talks and rumors about tax reform in US always give a lift to stock indices and thus to the greenback. Strong world reserve currency cannot push prices of GOLD higher, they are in opposite. We even noticed some information from the Wall Street players, that markets are already pricing in tax cut this fall. But wait a second. How can you price in some expectations, which come from Trump’s administration? Haven’t you noticed, that the percentage of his promises converted to real results is very low?
Safe havens price in a bad information flow which comes out from US politicians. Especially it’s about a growing conflict between Trump and Republican leaders. Plus rumors about resignation of Cohn, who is one of the main authors and drivers of the tax reform. What is going to happen if the reform will not pass the Congress? What if the reform will not have such a huge positive impact to the stocks as business hopes for? We could see a massive sell-off in US equities. Where would investors run in such a scenario? The answers are always cash, bonds and GOLD.
We observed an interesting price action in GOLD during the early US session on Friday. This price action made us to think about becoming bulls on GOLD for the upcoming fall. It’s an unusual trick which happens from time to time, but very rarely. Now let’s try to see what happened. Here is the 15 minutes chart of GOLD:
The markets players were bullish on GOLD up to 01:15 PM London time. The Yellen speech was scheduled for 02:00 PM. But suddenly the price reversed and started to fall sharply and very fast (action 1 on the chart). The difference between high and low price in one single 15 minutes candle is 177 pips! I was watching that action live and I had rounded eyes when I saw around 100 pips in one single tick!! My terminals had a delay of 2-4 seconds before they renewed normal prices activity.
Action 2 reversed the prices in a blink of an eye and caused a long shadow of that candle. There was 15 minutes of slower trading and action 3 brought prices almost at the same level, where it started from. What was that??
We suggest that someone big stepped into the market. And guess what was a position of that big player? We bet it was long. But not with the prices when the action started. Much much lower - around 1275.00.
Imagine you have billions and billions of dollars and you’re capable to move the markets. You have the information about stop-loss, take profit and postponed orders as well. I mean massive volumes. You want to jump in the uptrend of GOLD. What would you do?
Action 1. They move the market lower by massive shorts with huge volume during 5-7 minutes. Of course they have chosen a thin market with low volume and low traders’ activity.
Action 2. When the marked moved to the levels of massive postponed buy orders, they close their shorts with a profit of 150 pips roughly and open longs. Downside movement triggered that postponed buy orders, which caused that big shadow on the candle.
Action 3. Market reacted to these tricks with a bullish activity. Yellen was one of additional triggers. A lot of retail small traders were kicked off their long positions. Some of them experienced losses and margin calls. The price is back to 1290+. But people, who made this action are on double profit. Plus they still hold longs from 1275.00, otherwise we would see a pullback down on profit taking.
We bet that the people who made this trick knew what Yellen is going to talk about and they took in count the market reaction on her speech. Otherwise this trick could have a bad result for them. And of course, they have some rumors or insider information from high level officials in US government about upcoming political decisions and events. So they predict a surge in GOLD prices in the nearest future. That’s why we decided to stop our games shorting GOLD from highs. We became Fat Golden Bulls after this event.
Please note, that this article comes from my archive. Check the actual date in the header.
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