$NZ Price of Gold; Thin end of the Wedge

Gold in $NZD continues working it’s way into the thin end of a large wedge formation, moving sideways in a very narrow price range, caught between the forex effect of a falling USD, rising NZD and rising $US Gold price (USPOG). This is NOT price action, this is a sleeping tonic. Yawn.

NZ Price of Gold

So how does it translate into NZ price of Gold? Well, not that good actually. The persistent strength in the USD has pushed NZD up from the .40’s to the .60’s, a ~20% change which has sucked teh life out of any Gold price rallies and compunded Gold price declines. NZPOG currently is in an ugly declining wedge and looks set to test the horizontal support around $1413. The current ST channel shows NZPOG fell through it’s 200MA and tried to get back, but sagged. Again like USPOG, the indicators aren’t very helpful with NZPOG’s %R holding in oversold and RSI weak and staying there. The good news is that Gold can be bought with NZD’s at over $500 cheaper than in February. How quickly we forget that the NZPOG low was $575 not so long ago.

NZPOG 180609

The NZPOG chart illustrates the sideways price action of the past three months; the volatility in USD and USPOG keeping a lid on, and a platform under NZPOG. The whole picture is still of a rising trend with remarkable symmetry in trendlines.

At present NZPOG is working into a shallow descending wedge with horizontal support at $1480 and pivoting on teh 38.2% fib from Jul07 to Feb09. MA’s 50 and 200 are converging, MACD illustrates this also and RSI is uninspiring hovering under 50.

A breakdown at support would probably follow through to the 50% fib at $1400, with solid support at $1300 and again at $1100. Accumulators will be looking for metal at these and lower prices.

A bounce on support and push up through the 50MA would bring stiff resistance into play at around $1600. This requires a rising USPOG and a more stable USD.

Why use TA for NZPOG?

This came up in discussion about why would we use chart analysis for the price of Gold in NZD? I think there are three important points;

1. Measuring the price of gold in NZD (NZPOG)
2. Using the language of TA to describe NZPOG
3. Applying trading analysis

For 1. NZPOG, is important to anyone who buys and sells in NZ currency, to keep tabs on the price in NZD. This is the same regardless of what the asset, service or product might be. This helps us to figure out whether we are buying or selling at a price relative to a previous high or low and factor that into a conclusion of whether it is a good, ok, or bad price. It’s a number that gives a perspective of value relative to historical price for buyers or sellers using NZD’s.

For 2. TA of NZPOG helps because it introduces all sorts of other indications of whether the price is a good, ok or bad price relative to your own ability, timeliness and cash to participate. On the other hand the language of TA is born out of trading and it is illusory in that it implies forces that don’t exist or that play out as a by-product of other primary forces. To help illustrate this, the price of gold in NZD is not set buy the buyers and sellers of gold who use NZD to do it. The price is a factor of NZD relationship to the USD of which Gold price is set in (or Pounds). This is helpful only as a buyer or seller using NZD, and TA helps to inform a view of when to act in buying or selling.

For 3. Trading analysis of the metal is useful in the markets that the metal is actually traded in, and that’s done largely on paper (etf, options, futures). The reality is that very little actual metal physically moves between counterparties as a result of a trade, but sometimes it does. It is not inconceivable that people and businesses in NZ pay for metal trade done in USD with NZD’s. What trading analysis is not helpful for is the reason a person might want to have some metal, which is more akin to insurance than investment, let alone trading in the sense of ST profit gains short or long. It is very helpful for buying for inventory, or selling mined metal.

My point is that if you use NZD to participate in buying or selling precious metals, or in fact any asset class, the value of any one particular measure or method of reason for getting into, staying in, or getting out of precious metals can be questioned in isolation; however a combination of all relevant knowledge and skills, and the ability to apply them would be ideal. To buy and sell using NZD’s and not to monitor the price and circumstance of ones holdings in the currencies that one is forced to consider and use is illogical.