Sunday, July 23, 2017

Gold: Two Amazing Charts That Show Why Traders Are Bullish

Gold (GLD ETF) has been moving up despite negative fundamental headwinds. US and ECB tapers along with lower US inflation should be hitting gold prices. Gold is moving up, however, which is a sign of bullish action which traders love. We're still bullish short term.

What's Action?

Action is the trader's mechanism to compare what should happen to what does happen. When they go opposite you may have discovered an important trend.

Let's analyze:

Low Inflation Should Be Negative For Gold

cpi versus gold
Source: St Louis Fed
Above you can clearly see that when CPI (in red) moves up and down gold prices (in blue) follow.

Dropping rates of US inflation should be negative for gold prices.  Weak inflation in the EU and Japan doesn't help.  But gold is not moving lower?!

Higher Interest Rates Should Be Negative For Gold

gold price and interest rate relationship
Source: St Louis Fed with Elazar lines
Here we drew four lines moving up when interest rates moved higher. When the ten year spiked higher it ultimately led gold (in blue) to drop.

Central banks tapering bond purchases should hit longer term note and bond prices driving rates higher.

That should be negative for gold. But it hasn't been.

But It's Not Hitting Gold, What's Up?

Which way should gold be going? Down.

But it's not we think for one reason:

Investors are concerned about the economy and didn't buy into this rally.

Markets at all-time highs should have investor sentiment through the roof but it's below average.

Investor skepticism is helping gold move higher and that is a pretty powerful driver in the face of lower inflation and tapering.  That's "good action."

Wrap It Up For Me Elazar: Make Me Some Money

You have inflation, rates and action. Investors are still scared despite all-time market highs. That's a pretty strong wind helping gold go higher.

Our next step is to monitor how gold reacts to the next change in news. We are bullish on the economy so we expect gold to turn around at some point.

For now though gold action is showing gold can still move higher. Bullish.

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By: Chaim Siegel, Elazar Advisors, LLC, Happy and profitable trading!


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