Articles
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Gold investors lured to trade on charts only
MADRID (MarketWatch)—The noise around gold these days is about as loud and frantic as you can get.
Investors are bombarded with speculation and news about central-bank policies, along with economic data, investment banks racing to cut gold forecasts, dollar moves, updates on Indian wedding demand, data on ETF outflows, and on and on.
The end result: A roller-coaster ride that has headed mostly down since mid-April. In that month alone, gold futures lost 8%, and the most-active contract has now plummeted 19% so far this year. After a brief respite from selling on Monday, gold for June delivery GCM3 -0.60% was down another $20 on Tuesday.
Many have declared the multiyear rally to be over, as investors remain scarred by how quickly that April selloff took hold.
As gold continues to lurch back, the noise around gold can seem overwhelming. Which approach works? Charts, fundamentals or both?
“Right now when there’s so much nervousness around, people tend to look at the charts and trade from that,” said Ole Hansen, head of commodities strategy at Saxo Bank. “That’s where you go find where is the potential next level.”
Some investors have tried to cut out the noise completely. Petko Bankoff, who tweets and verbally spars with fellow gold traders under @5koFX, is a 30-year-old trader who makes his home in Veliko Tarnovo, Bulgaria. For a month, he turned off the news about gold and just watched the charts. In a series of emails, Bankoff discussed that month of chart-only trading, a test he ended around three weeks before gold’s dramatic April plunge.
He said the main reason for his experiment was to figure out what was going wrong for him. “Every time I took trades based entirely on my own technical analysis I was profitable, and most of the time when I took in consideration fundamentals, news or other analysts’ opinions—I lost,” said Bankoff, who has been trading gold for four years.
While his experience isn’t as deep as some of the big traders or investment banks’ strategists—he got his start trading currencies with $500 in savings after losing his job as an engineer for search-engine optimization—it may be a valuable one for retail investors lured into gold investing by the metal’s doubling in value in about three years. These investors are now wondering if the gold trade that worked so well when it seemed to be on a one-way path upward has now turned too risky and volatile.
So what did Bankoff learn from that month? “The price action and technical indicators give all the clues a trader needs to take the right side of the trade and make money,” he said.
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