Gold Gains, USD Gets Hammered

With Bernanke raising the white flag and admitting he really has no tools left to deal with the US economy, he stated during the press conference they will likely keep rates close to Zero till 2014.  This is almost akin to them admitting the only play the fed has left is CTRL + P (e.g. print money).  In essence, QE 3.0 (or 2.5 or whatever).  This woke the markets up with Gold gaining over $50 in a matter of hours while the USD got hammered.  This has left a lot of plays on the table, but we will focus on the ones we think will be the big winners coming out of this announcement.

Gold – Ahhh, My Precious….

After starting the day looking like Gollum, the shiny metal touched the daily 20ema and then bounced about $12 before waiting for Big Ben’s less than optimistic comments.  After the words left his mouth, the metal virtually surged almost $50 in less than an hour.  Why?

Well, with Ben basically telling everyone policy rates will be kept low, real rates will remain negative and thus the USD will get hammered. Combine this with a global de-leveraging process and you get increase geo-political risk.  These factors combined all are a boon for Gold so expect precious metals to be the big winner on this.  In fact, Gold and Silver were the big winners gaining 3+% each on the day while AUDUSD and the NZDUSD only gained 1.6 and 2% on the day.  Thus, the market is telling you via price action where people put their money.

Enough of the Fundamental Talk…How Do We Trade It and Make Money?

Glad you asked.  I will point you to exhibit A and B (the daily and the 3min chart).

Exhibit A
Looking at the big picture daily chart, after taking out the $1700 level by a nose, we suspect pullbacks will be bought anywhere from $1655 up (doubt it will get that low though) gunning for the eventual $1748/50 touch which we expect by the first or second week of Feb.  After that, the market will then take aim at $1800 but this ‘event’ definitely gives new steam to the bull market in Gold.  Although in support of the bull market which was already healthy for gold, it should be noted the shiny metal only sold off 5 days this entire year (out of 17 trading days or 29% of the time) so the market was already consistently buying up gold.


For holders of physical, investors and medium term swingers, anywhere between $1655 and $1681 will suffice for an entry with stops below the 20ema and targeting the $1748 and $1790 levels.

Exhibit B
For your shorter term intraday players, we defer to the 3min chart which is showing some clear intraday levels.  Taking a look at the chart below which shows the price action on the 3min time frame from the London Open (grey vertical line).  The two levels to watch from an intraday perspective are the $1704.15 level (where market topped and pulled back after initial spike) and the $1693.33 level (where the market pulled back to during the spike + held price for 12mins before price climbed higher – aka – breakout-retest level).  It should be noted today was an extreme day in terms of volatility, but the market created a history at those levels, so intraday traders can watch for pullbacks to those prices with stops below $1690 targeting an eventual move to $1748 which we believe is the next upside target.

For now, it seems silly to play the short side as everyone is piling into gold and even the pullback from the highs is both timid and corrective in nature, suggesting the next impulsive leg is up.  We would also like to note the pinbar at the day’s low which was also the rejection off the 20ema.

NZD/USD – High Flying

After forming a LH (lower high) while starting to break down, the pair held at the .8045 level and climbed almost 150pips within 4hrs.  In doing so, it took out the previous days high and key swing high in this most recent uptrend which would definitely inspire new bulls to enter the market while giving new bulls added confidence.  We expect the USD to get hammered in the wake of Ben’s announcement and suspect the NZD/USD will be one of the bigger winners.

Taking a look at the price action on the 5min chart below, we can see how the market found short term resistance at .8147 and pulled back directly to the 20ema offering a good pullback entry.  On a side note, notice how price action was carried up by the 20ema for the next 12 candles and then made a new run. The highs at .8188 saw the market make its biggest pullback of the session (post spike) and pulled back where to???
NZD/USD " title="NZD/USD " width="622" height="750">
The .8147 prior spike high.  Notice the intraday pinbar signal off this level where price has bounced since then.  We expect the .8147 and .8117 levels to hold intraday offering bulls a couple of plays to get back long, targeting .8215 and possibly .8300 in the near future.