Market Structure

Gold(XAU/USD) – what and how?

Published on November 22, 2020

Overview

Gold (XAU/USD) is at an interesting juncture. The structure suggests that the top is already in place and we are moving down. However as we mentioned "interesting", here it is why :

The rise from lows of $1045 until new all time highs doesn't show the characteristics of the bull market, rather has some traits of a bear market correction.
The fall from the all time highs ( Aug '20) until last week ( Friday Nov. 20th 2020) also doesn't show a classic fall pattern that is required to confirm the top is in place and we are now in the correction cum consolidation pattern.

This is the beauty of this highly traded leveraged market, specially in the time of panic and uncertainty in the world. Now in these times, if you already have a position, you should play smartly and keep booking profits ( be it long or short ) and if you plan to enter then you will have to watch this carefully.

Structure review

Looking at the bigger picture - Here is what we plan to do : Wait for this existing structure to complete. Initiate small buys at the following levels:

$1800 with SL @ 1775 to $1780
$173x levels with SL @ $167x levels
$ 158x to $1600 level with no SL ( small quantities ) - Physical Gold, ETFs ; Gold Mutual funds
$ 1450 to $147x levels with no SL ( small quantities ) - Physical Gold, leveraged ETF can be a good choice ; Gold Mutual funds
$137x levels ( increase quantities - with a though to average down ) Physical Gold, leveraged ETF or Spot around $1100 to $1200 levels - Sell PUT , Buy Calls, long term future contracts, Leveraged ETFs, Gold mutual funds, Physical Gold.

By the time we will reach to levels of 4 and 5 (above), there will be a lot of pessimism in the market and news headlines will be full of bad news about Gold and how its not a recommended asset class. By the time we reach levels of 6, it will be disaster to own Gold and that is the time we need to buy and forget.

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