Binary Bet of the Week: How Quickly Will Gold Lose Its Glitter?

2 mins. to read

by Dave Evans of

How Quickly Will Gold Lose Its Glitter?

It’s been quite a week for gold, primarily thanks to a spectacular rally on Thursday June 19th. Precious metals have been in demand after the scenes of shocking violence and an incredibly rapid advance from ISIS in Iraq. In addition to this, traders were caught on the hop by an unexpectedly dovish statement from the Federal Reserve, a move that potentially dilutes the value of the US dollar more than expected.

The big question is whether this huge spike seen on Thursday is a chance to sell, or a signal to buy more?

The answer is potentially a bit of both:

The chart below shows gold alongside a custom indicator called the Parabolic Yawn.

This indicator tracks the gap between the price and the Parabolic Stop and Reverse indicator (PSAR). It compares the gap to other previous divergences over the last 50 periods. If gold stretches away from its PSAR by more than it has done in the past, then it has been a fairly consistent sell signal and vice versa.

Right now, we can see that the PSAR Yawn (bottom panel) is at its highest point for some time, as indicated the ride line hitting 100. Usually this leads to a sell off that can last days if not weeks.

We can see a similar pattern on silver below:

In the short term there are certainly grounds for playing the reversal. We can see how the PSAR yawn caught two big reversal points on silver in early 2014 as PSAR spikes coincided with at least periods of sideways trading.

However, this is not an automatic sell signal for a the medium term. Although gold is short term over bought, the longer term still indicates that gold and silver have some upside. While the situation in Ukraine barely impacted markets, Iraq is a different beast. The potential disruption to oil flows is one consideration, but the other danger is that ISIS is a complete unknown. Western politicians may have spent centuries trying and failing to second guess Russia, but this new terror threat is a whole new ball game.

Secondly, on the weekly chart, gold is looking far from over bought and is more in neutral territory than anything else. The most powerful medium term gold sell signals come when gold is over bought on both the weekly and monthly.

The weekly chart shows how a sell signal on the weekly chart can be very powerful in the medium term.

Therefore, the best way to play the current set up is with a short term downside bet. The best option for this is a ONE TOUCH, as this pays out if the price touches a certain target within the time frame – it doesn’t have to close below at expiry.

A ONE TOUCH trade predicting that gold will reverse and touch $1,300 at some point before the close on Monday could return 212% if successful. A £10 stake could return £31.19!

Disclaimer: This trading guide is intended for educational and information purposes only. They should not be construed as giving investment advice and you should not rely on any content within these guides in making or refraining from making any investment decisions. accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.

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