Tips for traders, 1 September 2020
The recent volatility of gold has increased nervousness. Many investors are still fearful of a repeat of what happened in 2011 when gold plunged from $1920/troy ounce to around $1100. In that year, many people expected up to $2000. The losses then made some investors wait for almost a decade to see the price recover.
With the recent breach of $2000, confidence has returned to a great extent and people are piling up their positions in gold, especially after recent stimulus that gives Americans more money to use. COVID-19 is still not under control, but instead of spending their money on consumption, Americans have often chosen to invest it. This started with stocks, then commodities and lastly cryptocurrencies.
Right after the price of gold hit $2075, many investors and traders liquidated their positions to take some profit. In the meantime, there are still people who think that the economy is weak, particularly the job market. They’re looking closely at technical data like the VIX (the volatility index of the S&P 500), DXY (USD index) and other indices for an idea of conditions.
Looking at the current situation, we can see that the VIX is not showing any sign of weakness, holding above 24. Usually when the VIX is 10-24, it is in its normal range. When it breaches 24, the market is entering fear mode.
There’s no huge pressure: it still looks like the VIX in waiting mode. If and when the VIX spikes, stock markets probably face chaos. As traders, we can try to mitigate risk by taking more care when setting stops or simply making smaller trades.
Gold is currently moving in its volatile range where the price bounced from around $1900 to $2000. This has caused challenges for many traders.
If the price breaks its all-time high, the probability of an extension of the uptrend is high. If not, though, it will probably continue lower. Either direction is available to trade as long as traders are aware of risks and attempt to manage them appropriately.