Gold/EUR Is A Buy
Chart courtesy of Tradingview.com
In my January post, I gave the recommendation to buy Gold versus the EUR at 1022 EUR, with a target for inverse Head and Shoulders pattern at 1208 EUR. As seen in the above monthly Gold/EUR chart, the target hasn't been reached so far, but the maximum advance of 138 EUR (14% between 1160 and 1022 EUR) was significant. Today I will update you on that idea with a new pattern that I found on the chart.
For 10 years, the Gold/EUR has been in a long-running uptrend (highlighted in green). The price had been elevating all the way up from 2005 charting clear zigzags and peaked only in 2012 at 1384 EUR level. Then we saw almost a 40% sharp fall from 1384 down to 856 EUR minimum. At the end of 2013, Gold touched the downside of the trend and one month later, at the start of 2014, the market rebounded from the support and found resistance at the magic 1000 EUR level where the price bounced off into a sideways consolidation between 900 and 1000 EUR.
When I wrote my January post, the Gold/EUR already broke up above the mentioned 100 EUR range, and then the price rocketed up reaching the 1160 EUR level within a month. The previous target at 1208 EUR hasn't been hit, and the market became rangy for the next 3 months.
In my opinion, we will see a breakup and further advance of Gold/EUR soon. My favorite Bull Flag pattern appears on the chart (highlighted in black). It's a continuation pattern, and we have an amazing coincidence of the Flag's target and recent high. The Flag’s pole distance added to the break point hits 1384 EUR level where the 2012 maximum stands.
The trade setup is to buy Gold against the EUR at the current 1097 level (or keep your January long if you bought that time) with 1st target at 1384 EUR and the 2nd target located on the upside of the trend at 1520 EUR. The stop loss should be set below the current month candle (below 1040 EUR level). The risk/reward ratio (for the first target) is 1:5, very nice!
Sell Copper
Chart courtesy of Tradingview.com
In January, I also posted another long-term trade setup to short Copper. Here's a quick reminder of the main trade figures: entry point was at $2.7545, stop loss at $3.03 (still alive) and the target was at $1.3905 (not reached yet). For those who want to stay short, I will update the target level below.
After Copper had breached below the $3 horizontal support in November 2014, the follow-through selling pressure appeared and the price quickly dropped down to the $2.42 low. A rebound from that bottom was almost as fast, and it took 4 months for the price to reach back the $2.96 level. I think Copper won't get to the $3 level as sellers were impatient and sold even below the resistance. It's very healthy for the trade that the price returned to the breaking point and then fell back confirming the setup.
The $3 level acts as a tough area of double resistance where both the horizontal support and falling trendline have crossed. On the downside, there are two important levels to watch, the first is the low area at $2.385 from 2007 and 2015. If the price moves below it, you can move the stop loss down to breakeven area and enjoy safe trade. The second support is located at the 10 year low level at $1.25.
The trade setup is to sell Copper at the current $2.83 level (or keep short for those who sold earlier) with a stop above $3.03 and the target at $1.25 (as no more major supports are seen). The risk/reward ratio is huge, 1:8, enjoy the trade!
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stock(s) mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
MMMMhh,... I'd be weary shorting EUR just a day before what's shaping up to be the moment of truth, with a last minute deal between Greece and it's creditors still possible and increasingly likely. There may be a nasty rally of the EUR and gold may also be seen as less necessary for protection against financial chaos.
Excellent analysis Aibek, I will be following this trend and will be watching what happens. What do you see in the Gold/USD movement?
Dear John,
Thank you very much for a warm feedback.
I updated my long-term bullish idea in Gold/USD this month at the following link http://www.ino.com/blog/2015/05/gold-and-silver-monthly-monumental/ .
Briefly: targets are set at $1300/1434; trade should be stopped below $1170.
Have a lucky year ahead as you are going to follow long-term trends!
Hello, Aibek!
1. How does one buy gold in Euros? Most brokerages I know sell or trade gold in USD. I am told I must exchange Euros for USD and then buy gold. Is there a direct way to do this?
2. Also, would you agree that just selling Euros and holding USD in lieu should have almost the same effect?
Thanks!
Sincerely,
Bharat
Dear Bharat,
Thank you for your question.
1. European banks/brokers (Saxobank for sure has this direct cross) can help with this pair as EUR is their local currency.
2.Yes, you can avoid additional broker service just via selling euros for the notional of USD you sold for the GOLD/USD trade. For instance you buy 1 troy oz of Gold against USD for $1190 then you should sell 1094 EUR for USD (current rate 1.0875) and you will buyback those 1190 USD and you will be long Gold at 1094 EUR, but please watch chart for cross to exit the deal, you will sell Gold against USD and then buy EUR back for the notional of USD from Gold trade.
Best of luck, Aibek!
Thank you for your prompt response, Aibek!
I was thinking of something simpler: Sell Euro and buy USD at current exchange price. Hold USD. When gold hits the target you gave - Euro 1384 - just sell back the USD and revert to Euro. This should work so long as USD/gold remain inversely related, same as USD/Euro. Do you think this is a viable alternative?
Also, a couple more questions, please:
1. What is the time frame in which you expect gold to hit the 1st target - E1384?
2. What do you evaluate will be the Euro/USD rate at that point in time?
Sincerely,
Bharat
Bharat, you are welcome!
In my first post this month (http://www.ino.com/blog/2015/05/gold-and-silver-monthly-monumental/ ) I showed how Gold correlates with USD, EUR, Oil.
And the answer is Gold is not a mirror for the Dollar, it stopped moving at whole compared to other Dollar counterparts. So visible simplicity is not effective these days when we are talking about EURUSD.
More answers 😉
1. It is monthly chart so it can take this year or even next year's half to hit I guess.
2. I guess EURUSD will fall almost to parity first and then rocket up to 1.30-1.50 that time.
Intelligent trades!
Aibek
I better get rid of Euros, atleast for now. ..
Much obliged for all the inputs, Aibek; Cpocibo bolshoi!
Sincerely,
Bharat
You are welcome, Bharat!
Pozhaluista! Rakhmat! 🙂
But Eur$ can go to 1.12-1.15 before sharp fall, be careful.
Best, Aibek
@Aibek, by saying to short copper means you're effectively short the global economic outlook. Is this true? The recent (today) pop in the USD -- where did that come from? I mean, what what macro driver was behind it? the EUR has dropped nearly 1000 pips in a month. Wha??? This is one volatile market. But soothsaying the continued drop in HG, that's like laying a dark cloud over the whole world's economic outlook.
Dear Anonymole,
Glad to hear from you again, thanks for feedback!
To be short: Dollar is still the King, China has weakening demand, stockpiles are growing, Oil topped.
Best regards, Aibek
What instrument/etf/future is gold/euro? Nice signal btw.
Dear Justin,
Thank you for feedback, it is spot cross of Gold versus EUR.