Where Is Gold Going Post The US Election?
Where Is Gold Going Post The US Election?
In our previous interview (last issue of YTE), Lachlan nominated a va2020 gold target of $USD1900 per ounce for gold and he nailed his forecast. Now that $USD1900 has been achieved, we again ask Lachlan where gold is going and most importantly, why? Lachlan is also well-known for not holding back on his opinions, so we are super excited to be interviewing Lachlan once again.
YTE: In our last edition, you predicted gold would hit $USD1900 per ounce and you were spot on. Where is gold going next?
Lachy: Hi there and thank you for having me back! That is a great question!
I think it is critical to mention that I consider gold to be the global currency of fear. That being said, fear is definitely rising. There are many reasons for this, the most obvious being the 2020 US election race. I believe that there are a lot of traders and investors, globally, who are nervous about ‘life’ post 2020 if Donald Trump does not get re-elected. Love him or hate him, in recent weeks Trump has driven the Dow Jones Industrial Average to over 29,000 for the first time in its history. US unemployment figures have also plummeted in the same period, far faster than any forecaster suggested. Both indicators are a sure sign that the US economy is well into a post COVID recovery. This is particularly good news for the US.
If Donald Trump is not successful in his re-election, we are highly likely to see a GFC2 that will make GFC 1 look like a walk in the park. A lack of economic confidence coupled with a complete loss in political confidence is a very dire situation for the global financial markets to cope with. That derives for us two possible forecast scenarios that could prove valuable to YTE readers globally. I think it would be a great idea to explore both.
YTE: Ok, let’s chat pre-election first. What levels in the market do you see critical leading into the election?
Lachy: As suggested in my previous article, we were expecting a bull run on the price of gold and that is exactly what we got. The gold price actually went significantly further than what I was anticipating, and I think that is a sign of the jittery nature of the global markets as we speak. The gold market topped out at a price of $USD2081 per ounce. From this high the market has started to retrace nicely setting up a number of key support levels to watch out for as we move into the election.
The gold market has failed to close and hold above the round number level of 2000 and is slowly creeping back down towards my 2020 target of 1900. That being the case, we can plot the recent rise of gold, on a monthly chart, to identify key retracement levels. We can then reflect this retracement onto a daily chart in order to confirm if these key retracement levels are being honored. Once honored, we can then use these levels to establish forecast levels for the coming months.
Image 1 is the gold monthly chart. I have run a Fibonacci retracement from Point A to Point B to detect high probability stall points as gold consolidates post its bull run. As we speak, the potential key retracement levels we want to identify are the 38%, the 50% and the 76% Fibonacci retracement levels. These levels are identified by the yellow, green, and red ovals, respectively. The 38% Fibonacci retracement is at 1932 per ounce and the market is currently stalling at this level nicely. If we break below 1932, we will move to the 50% retracement of 1886 and if we break down below 1886, we are likely to fall to around the 76% retracement price of 1783. All of these levels need to be watched as potential consolidation zones before gold makes its next major move. You will know that the market has stalled at one of these levels when the current (September) monthly chart candle closes at or just above one of the key levels.
Stepping down to a daily chart, the stalling in the market becomes far more obvious. See Image 2.
Inside the black rectangle, you can see the market is hugging the 38% level which is a sure sign of three things. Firstly, the gold traders globally love using Fibonacci retracements to pick market stall points. Secondly, our retracement is in exactly the right spot, confirmed by the fact the market is stalling at our 38% defined level. Thirdly, gold is building a platform (level of support and resistance) for its next major move.
If we get a daily close on gold above 1975, the green rectangle in Image 2, I suggest the market will start buying again with the intent of a revisit of the highs of 2020. A buy trade would be very much on the cards.
If we get a daily close below 1908, the red rectangle in Image 2, may I suggest a short sell down to one of the key Fibonacci levels highlighted earlier is a great trade.
YTE: Ok, lets chat post-election. What are your thoughts and how can YTE traders globally take advantage of it?
Lachy: I am going to throw a wild card into the mix here, so I hope you do not mind. If Donald Trump gets re-elected, there is no reason for the global currency of fear to rise any higher. Post-election, a second term for Donald Trump should mean a leveling out of the gold price around one of the key retracement levels identified above. Gold hovering around 1900 per ounce is a relatively sure bet for the end of 2020.
If Donald Trump does not get re-elected, the global currency of fear (gold) will most likely skyrocket. Many of the investors and bankers I speak to weekly are super nervous about a US Economy not being run by Trump. If Donald Trump fails to be re-elected, I suggest targeting gold prices to the high side. Look for a revisit to the 200% extension (2056) and then two potential all-time highs of 2148 (the 233% extension) and 2334 (the 300% extension). Either way, if the market runs long, watch for a daily candle close at one of these extension levels to know what target you should be using on your long trades.
My wild card may come from left field, sure, but it needs to be considered. If the US were to return to a gold backed currency (the USN), as an alternative to its current currency (the USD), the price of gold will also skyrocket. The only person with the people in place to pull off such a monumental change in the US currency is the current president.
If Trump is re-elected, we are highly likely to see a massive change in the global currency markets, the likes of which you and I have never seen before. Some economists are tipping gold will hit $USD10,000.00 per ounce. If the US introduces a gold backed USN, these economists may not be far off the mark.
If Trump is unsuccessful in re-election, the concept of a USN is likely to be put on hold for at least one, if not two full US election cycles. That said, Trump not being elected will spike fear globally. Either way, I think it’s best that all traders learn how to trade gold both up and down! There is a lot riding on this election and a vast number of traders and investors globally are hinging on the result.
YTE: Lachy, any final tips for our amazing YTE readers globally?
Lachy: As always, the best way to attack any of these larger chart moves is with a smaller chart risk. My favorite trading chart is a 5-minute chart, partnered with the 15-minute and 60-minute charts. I look for a swing on the larger charts and seek to use the 5-minute chart for a great low risk entry point just prior to the market launching into a larger chart move. If you get on the right side of one of these trades, you will be an incredibly happy trader indeed. Stick to trading with the 60-minute chart trend and you are on your way to a particularly good trade!
YTE: Lachy, thank you again for your insights and time today!
Lachy: My absolute pleasure. I am a big fan of YTE, and I love to educate YTE readers globally on how to be great traders. Once again, thanks for having me!
Lachlan Elsworth | Founder and Lead Trader | The International Day Trading Academy. To watch an ‘On-Demand’ 90 Minute Trading Lesson with IDTA simply visit: https://www.idta.com.au/on-demand
To download Lachlan’s latest eBook on Market Design simply visit: https://www.idta.com.au/i-love-trading