GOLD

I can’t give investment advice; I am not regulated to do so. All I can do is tell you my thoughts moving forward. Therefore, the title of this week’s DRIVE THRU blog and the “Soapbox” should be pretty straightforward in telling you what I am thinking about! In the “Soapbox” I will elaborate on my thoughts.

It has been a very slow and strange start to my 2021 trading. I feel like it has been somewhat of a one step forward and two steps backward affair. I often talk about patience being required for trading, especially with FX, but FFS patience is one thing but this seems like another thing entirely at the moment. Forex seems both rangebound and choppy to me at the moment, nevertheless we press on with what we have to play with.

Moving on...

The links to my FREE E BOOK and ZOOM including my approach for 2021 are below.

FOREX TRADING... MY WAY – IT COULD ALSO WORK FOR YOU
including
THE WEEKLY FX PREMIUM...
TRADING GOALS & OBJECTIVES 2021

E BOOK 2021 LINK:

https://weeklyfxdrivethru.com/Docs/MY-E-BOOK-2021-9.0.pdf

ZOOM VIDEO LINK:

http://bit.ly/FXPremium2021

1. THE SOAPBOX:

GOLD

As I don’t trade GOLD, why give it feature status?

All will become clear moving forward, the very simple initial answer it that it is part of my daily routine, one of my go to charts when I run through my early morning routine to check on prices and inter-market relationships.

Obviously with GOLD I am looking to see corresponding USD (DXY) move in the inverted relationship correlation. I will also look at the commodity currencies especially the CAD and the AUD as well as the CHF with regards to GOLD moves as well. Correlations in the FX market matter a lot. I have written about the correlations in the past. They provide confidence in direction and conviction to take the trade or not. The GOLD / DXY relationship has historically been the strongest inverse relationship in FX, and in place for years.

So why GOLD?

As a Fundamental FX Trader I am always looking ahead to try to establish my overall Trading Plan well in advance, and then, from within my overall plan I can then build up my pieces of the jigsaw that join together to form my strategies moving forward, not just by calendar year but rolling forward 6, 9 and 12 months at a time. It sounds heavy but, this process of a rolling trade plan within an overall trade plan has helped me hugely in the past. I work to quarters and half years in the main, but at certain times I will look beyond even those time scales in order to formulate my longer-term strategy.

Entering a new year in 2021 brings with it several fundamentals that we would NOT normally have to consider, such as: -

A NEW U.S. ADMINISTRATION
(Replacing a previous incumbent poorly managed administration)
A GLOBAL HEALTH PANDEMIC
HIDDEN / MASSAGED POOR ECONOMIC DATA
RECESSIONS & DOUBLE-DIP RECESSIONS
RECORD BUSINESS FAILURES
UNPRECENDENTERD WORLDWIDE DEBT LEVELS
MASSAGED UNEMPLOYMENT LEVELS

Since President elect BIDEN was victorious in the November 2020 election, so much has been written and distributed about how a Democratic Party led U.S. administration would function differently from the previous TRUMP led Republican Party. Fundamentally the differences will be bigger than usual as TRUMP had literally abdicated his duty months before the election date of November 4th 2020, meaning that policies that should have been implemented and strategically planned that had NOT been done, especially in relation to the Covid-19 pandemic. It means this would have to be instantly grasped by the BIDEN team with a plan communicated and implemented, basically, playing catch-up to the rest of the world in addition to the other new administration policy initiatives.

As I see it, the Democratic Party approach of big Government, greater regulation and big spending policy announcements will be exacerbated based upon the current U.S. economy’s predicament.

Here are my macro thoughts: -

BIDEN has already announced an initial USD$1.9 trillion-dollar stimulus package.
There will be more $$$ to help small business.
There will be more $$$ to help both the Hospitality and Travel industries.
Janet Yellen now as Treasury Secretary will talk about a strong USD policy, but DO NOT be misled by comments surrounding these statements.
The FED policy is to sacrifice the USD in favour of Wall Street to support the equity markets.
S. unemployment is over +20 million and growing weekly
Business Failures are at their highest rate even when they are currently masked by Stimulus policies.
BIDEN will announce a huge Infrastructure Bill to get America back to work.
At some stage the Debt will need to be repaid.
This means Personal, Business and State taxes will increase.
This results in lower disposable incomes in the ultimate consumer society.
All of the above points to inflation.
Inflation will add more pressure to the disposable income available for spending.
This places pressure on Equities to the downside.
The USD should rise in this environment.

But what about the GOLD effect?

Firstly, let me make it clear. A rising stock market is a headwind for GOLD.

GOLD is a non-yielding asset, so why hold GOLD in a stock market that is rising? The simple answer is that your holding would be protective to a percentage of your investment total portfolio.

The U.S. has and will have for a long time to come, a “ZIRP” (Zero Interest Rate Policy) but, this brings with it, its own issues eventually, which are mainly low rates helps exporters which is great BUT, low home-based interest rates also import inflation, and, with this as a consequence the USD will fall. It is my thoughts around the latter point above that has me very interested in GOLD.

GOLD could evolve into a pure RISK ON and RISK OFF barometer. It did this back in March 2020 during the first wave of the Covid-19 pandemic and I believe it is possible for us to see the market repeat.

Historically, GOLD has always been bought as a hedge against inflation, or a store of value in a BEAR market. Here lies the USD$64,000 question. If, as I suspect, U.S. equities will drop as inflation and tax rises come in play, the USD should strengthen and the DXY move higher, this will mean that there could be a rising USD and GOLD both at the same time. It is usually as mentioned before an inverted relationship, but this has happened before during periods of great uncertainty.

I am thinking well ahead here regarding the above and if this were to come to play, it may not be Q3 / Q4 2021, but maybe Q1 2022 at the earliest.

What I am saying is moving forward, we should keep a closer eye on GOLD. There is absolutely no doubt in my mind that until we return to “normal” whatever that is, GOLD will play its part, it will have a much bigger role than usual.

It is widely expected that “lockdowns”, will end, or should end by the Summer of 2021. At this time schools, restaurants etc., will start to re-open. Additionally, the present masked economic realities will come into play. The costs of the pandemic will still provoke more spending to create jobs BUT at the same time the discussions will open up regarding how the massive spending will be repaid.

I expect massive volatility around the time of repaying the debt. Central Banks will be very active trying to maintain price stability, but in reality, apart from advocating more Quantitative Easing (QE) any talk of rate increases to stem inflation pressure will just exacerbate matters. This all points to activity in GOLD.

For these reasons, GOLD should be on every FX traders chart review list. Here are a couple of charts with my levels marked.

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5. CLOSING THOUGHTS:

Firstly, before finally...

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Why not get positioned at the front of the line!

Finally, as usual…

Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.

Finally, be GRATEFUL for your wins and COUNT THEM. Keep a POSITIVE MINDSET in play at all times, regardless of the market conditions.

Stay safe and wear a mask.

Scott Pickering
The Pip Accumulator
Twitter: @pipaccumulator
https://weeklyfxdrivethru.com/disclaimer/

BLOG VERSION: #398 FREE NEWSLETTER
DATE: 24th January 2021