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Technical analysis


Thursday, March 12, 2015

Gold prices, crude oil and Apple i- watch. How to trade gold around 1150?

There is much talk about the strength of the dollar and therefore a massive pressure on gold prices (among other commodities). There is no sign for the greenback to relax, unless something happens with the job numbers, the interest rates in the US or the equity markets. Discussing these fundamentals can be exhausting as your guess is as good as mine and the guy next to Ms Yellen.

Don’t forget crude oil
Crude oil under pressure means commodities under pressure and deflation spirals at work. It is remarkable how the king of energy is impacting importer’s economies by lowering the budget deficits. Basically, if you spent 60 billion dollars importing oil in 2013, now you spend 40 billion dollars importing the same amount. This, in theory, should give these economies more flexibility to buy other “goods”, as now, they have more money to spend. A different approach could be to import more oil (if you have where to store it as China does). However, deflationary pressures might weight more on gold than on energy. Why? Well, to begin with, you will always need energy, you will need it now and you will need it in the future. Gold, if you are India as an example, it’s great to buy it later… cheaper if you can delay the purchases.

Watch apple and the i-gold
Apparently, Apple inc. is in the business of buying a sizeable amount of gold to build their wrist watch. According to, the new devices "won't just be the most sought-after gadget of the year", but also "the world's biggest gold price catalyst of 2015". This is because, there will be a luxury version of the watch with a case made of the metal and if the sales projections are close to become a reality, apple could buy a third of the world’s gold production. As you know from experience, if Apple does this, what about Samsung, HTC, Nokia. If the watch succeeds we might be entering the era of the i-gold! All of these sounds surrealist, since at the end of the day, Apple might not use as much of the metal at all. It is, however, an eyebrow rising discovery if it materializes. But enough of fundamentals.

Weekly chart
Support at 1150, and we are there. It is a level to watch. At this level, the risk/reward is at its lowest, set a stop at 1140, and a take profit at 1175 which is the 38,2% fib retracement from the high of 2nd March. This trade is best visible if you are using the weekly chart.

Daily chart
Look at end of February, after a fast drop in prices, there were a few “relaxing days” that are normally low in volume. After that, the trend resumes and we see a lower low. I expect this to repeat once more before the i-watch is out in the market (joke or not a joke). The daily chart can give you a better entry than the weekly for obvious reasons. After you have taken profit at 1175, sell with the aim of taking a profit at 1150 (if you want to play it conservative), and lower if you believe in a lower low. The stop loss in this case is more complex to set. We need to see how the Parabolic SAR develops. That is your trailing stop.