Two of the Most Important Elements of the Gold Trade

You can’t trade the news, they say.

“There’s no way to accurately gauge how a news event will play out in the markets, I don’t care what they say.  Trading the news is an especially seductive trap for those who aren’t in tune with major stock market trends. They don’t realize that in most cases the market’s already baked the news “into the cake” by the time it’s reported.”

Interesting.  The problem with that argument is that it’s wrong.

On May 9, 2017, rumors began to circulate that Donald Trump may have obstructed justice over what had been deemed an unconstitutional dismissal of FBI Director James Comey.  It brought up the idea of potential impeachment, as well.

That’s big news. 

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Impeachment leads to instability, volatility and uncertainty – all of which lead to higher gold prices.  As that fear escalates, as the news and fear is fully disseminated, the price of gold begins to move higher and higher. 

In fact, it took multiple days for the news to be “baked in” with gold prices.  In the first four days, gold ran from $1,215 to $1,255 because news was immediately priced in.

When it comes to trading news, remember that news can go from local to regional to national to global at times.  So, it’s nearly impossible to argue that news is baked in at once.  In fact, the efficient market theory is wrong.

The second essential element is technical.

We can sanely argue that up to 80% of the time, we know when gold still pivot higher based on what the herd is doing.  If they get too fearful, we buy.  If they get too greedy, we sell.  But how do we know this to be true?

Again, the herd tells us.

Let’s focus on overbought conditions here.  Look at what happens when relative strength (RSI) dips to or below its 30-line, confirmed with a move to or below the 20-line on Money Flow, confirmed with a dip to or below the 80-line on Williams’ %R. 

Each time they confirm one another, the price of gold rallies higher.

Here’s the trick – the second all three confirm each another you buy gold.  The best part – you have at least a couple days to capture the move higher.  It’s the same with trading news and fear.  You have days to jump in depending on the severity of the news.

It’s not baked in on release.  That’s impossible and wrong.

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