Gold/AUD ready to make an assault on the December highs?

25 thg 1, 2019

Let the market force the trade, wait for a break of the current range and ride gold into the December highs.

There are obviously many considerations we should assess when trading any market. But, two that stand out when trading gold, especially when it's strongly trending, are:

1) Whether gold is going up/down in other G10 currencies, and not just USDs
2) Understand which is the weakest currency over the past five-days and trade gold in that exposure

Adopting these principles, we can see that in the recent bull run from November gold rallied in almost every currency, even some of the stronger EM currencies too. Granted, we are currently seeing signs of consolidation in price but is consolidation is healthy after such a strong run. The question we are fielding actively now is around when the next leg up plays out, and what FX exposure we should use as our vehicle.

So, given the macro backdrop is still supportive of gold appreciation the preference is to trade gold in AUD or EUR terms, although the AUD gold (XAUAUD on MT5) chart looks interesting. On the daily, we can see price oscillating in a fairly tight range and neither the bulls or bears hold the conviction to exert their dominance. That should change early next week and should be respected, and my view is the higher probability is that we see an upside break of this range, which will force the trade. A close, therefore, through 1810 would coincide with stochastic momentum accelerating to the upside and likely promote a bullish crossover on the weekly chart too. A move into the December highs couldn’t be ruled out in this scenario. Of course, should price break to the downside and short positions would be preferred.

The catalysts are indeed there for all to see, and the AUD is firmly in play. Firstly, the meeting between the US and China delegations to discuss trade could be a big driver of the AUD, with traders using the AUD to express a view on EM. Secondly, we get NAB business confidence and Aussie Q4 CPI and should these come in weaker-than-forecast then it should open the door for the RBA to turn far more dovish at the 5 February meeting.


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