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We have to make clear we are not claiming to be the first to recognise this, nor is this a fool-proof method for forecasting price – there are many good articles detailing research into this freely available across the web and there are also many conspiracy theorists that see this as pure market manipulation by the big players.  We are not one of the conspiracy theorists – we are just gold traders trying to use every available resource at our disposal to create the best chance possible for success. 

After a number of failed attempts to break through $1734 throughout November, gold finally punched its way through on the 23rd, triggering many technical buys as traders foresaw prices rising back towards the $1785-$1795 level.  It came as a surprise to most of us when the price stalled out around $1755 and then fell away sharply on the 27th back down to $1700 and, later, to $1683.

The sell-off on the 27th was in fact so unexpected that the CME Group, which operates the U.S. COMEX gold futures market, had to issue a statement to confirm that there had not been a “fat-finger” data entry error that caused the market to slump.

Keeping things as simple as possible; the gold lease rate (GLR) is calculated as LIBOR (London Inter-Bank Offered Rate) minus GOFO (Gold Forward Offered Rate), with LIBOR being the average interest rate at which a selection of London banks will lend money to each other at and GOFO being the interest rate at which dealers will lend gold on swap against US dollars.

Central banks lease their gold to provide liquidity.  The Central bank will lease their gold to a bullion bank at the agreed GLR for a set duration (1, 3, 6 or 12 months) – the bullion bank uses the gold to create a profit by selling the gold and using the money to invest in something which yields higher returns, using these returns to pay off the lease costs on the gold.

Since 2008, it is normal for the 1-month GLR to be negative and, quite often, the 3-month GLR falls below zero too.  In effect, the Central bank is paying the bullion bank to take their gold – this might sound strange, but as the value of physical gold has shot up in recent years so has the cost of things like insurance and storage and so it makes sense for someone else to be bearing these costs whilst you effectively still retain the asset.

If, for whatever reason, the GLR is suddenly and dramatically cut a flood of selling (and therefore drop in the price of gold) takes place as the bullion banks take advantage of the lower leasing rates to “acquire” more gold to sell so as to raise more capital to invest in higher yield securities and thus increase their profits.

We’ll leave it to you to surmise the different reasons why these sharp drops in the GLR take place – as we said previously, we are not conspiracy theorists.  What we do know is that, between 23rd November and 26th November 2012 the 1, 3, 6 & 12-month GLRs fell quite sharply and that this was followed on the 27th by an unexpected fall in the gold price from $1749 to a low of $1684 over the next 5 days.  By the 27th the GLRs had returned to their pre-fall levels, but gold nose-dived $65 against the trend.

This can be seen with even greater clarity in September 2011 and December 2011 when you look at the chart below:

As you can see from the chart above, the cuts to the GLR which have a strong impact on price are typically followed with a more-or-less immediate return to their previous levels.  It also seems that the larger and sharper the GLR cut is, the heavier and quicker the impact on the gold price – in the September and December examples above the subsequent gold price falls were $210 and $169 respectively…but in both cases you can see that the GLR cut took place, had reached its bottom and was on the turn prior to the sell-off.

Like with all indicators, this is absolutely NOT fool-proof…that would be far too easy!  This should be used as another resource to help achieve success. 
There is clear evidence that a sharp fall of the GLR precedes a sharp fall in the gold price by a day or two on numerous occasions and so this can be used to help make trading decisions – if you see this pattern emerging you have to question whether it is wise to take a long position. 

The GLR is dynamic and affected by many different factors as it is a derivative of LIBOR and GOFO – it is always changing and therefore basing all trading decisions on whether it is rising or falling would be unwise. 

From our analysis there is no direct correlation between the GLR and the price of gold per-se – but when a sharp fall of the GLR is sustained over 2 or 3 days it looks like a good time to go short!

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You can get a 30-day historical view of the Gold Lease Rate at www.kitco.com and longer-term charts are available at www.sharelynx.com

Gold surged through 1300 yesterday as the unfolding rally gained momentum, homing in on the 200 DMA like an Exocet missile.  It can only be a matter of time before we see gold break through this important trading level, currently at 1309 and falling.

The tumbling dollar and surging oil price are aiding gold's ascent, with wobbling equities helping the rally.  This is shaping up to be the best week for the gold bulls since the August rally and a close near the weekly highs will suggest further gains next week.

A "double bottom" has now been confimed on the weekly chart at 1180 - a strong technical signal, particularly when the triangle pattern has been broken so decisively to the upside.

Support can be found at 1294-1296, 1284-1286, 1280, 1270-1275, 1266-1268, 1250-1255, 1237-1240, 1220-1225, 1210, 1200, 1188-1190 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline   to 1000-1050 in the short term, though isa looking increasingly unlikely.

Resistance can be found at 1302-1305, 1326-1330, 1350, 1360 and 1377-1380.  The breakout above 1280 suggests an end to the intermediate term down trend, though it will take a close above 1300 to confirm a more significant rally is now developing.

Today's video for subscribers looks at the recent trading in more detail

It is a general rule that gold operates inversely in relation to the US Dollar.  If the dollar is down, gold is up as other currencies are now stronger than the dollar and can therefore acquire more gold for the same cost – therefore this increases demand for gold; and visa-versa.

This means that you can get a reading on the direction that gold is likely to move in by monitoring for big moves in the forex markets - as forex moves precursor those in gold.

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Whilst you can trade the dollar against any other currency, it’s predominantly traded against Euros (depicted as EUR/ USD) or British Pounds (GBP/ USD).  For both currency pairs the exchange rate is stated as the value of one Euro or Pound against the US Dollar – i.e. GBP/ USD 1.6000 means that for every British Pound I hold it is worth 1.6000 US Dollars.

Gold acts like a currency in its own right and, as it’s priced in dollars, it makes sense to think of its “exchange rate” being that of its current price for an ounce of gold.

All exchange rates are linked – so if the current gold price (i.e. “gold’s exchange rate”) is $1600 per ounce and the exchange rate between the GBP/ USD is 1.6000 (keeping things simple) we can deduce that if I’m holding £10,000 then I can purchase 10 ounces of gold (£10,000 x 1.6000 = $16,000/ $1,600 = 10 ounces) .  If the dollar weakens against the pound to a rate of GBP/ USD 2.0000 my £10,000 would now buy me 12.5 ounces of gold (£10,000 x 2.0000 = $20,000/ $1,600 = 12.5 ounces).

Because I can now buy more gold for the same amount of money it represents a better investment and so I’m all over it it…but so is everyone else who is holding £’s (or whichever currency has advanced against the $) and so very quickly the price of gold increases due to increased demand.  Simple economics.

Irrespective of the direction - if there is a substantial change to the value of dollar it tends to result in an inverse impact to the price of gold and, as gold reacts to the dollar price, it passes through its own technical thresholds which exacerbate or limit the impact.

The following charts from 23rd November 2012 help illustrate this.  Bear in mind that the 23rd Nov was supposed to be a quiet day trading as it was the Friday after Thanksgiving in the US and so is traditionally treated almost like a public holiday and therefore trading is very light.  The first two charts are hourly EUR/ USD and GBP/ USD respectively:

Both currency pairs advanced quickly against the dollar (as you can see from the charts it is very common that EUR and GBP move in similar patterns against USD) once they’d broken through resistance levels between 12pm to 2pm.

The chart above shows the hourly gold spot price on the same day.  Notice how there was a very flat period prior to the rally starting – no-one was really expecting any movement in gold due to the US holidays.  As EUR and GBP made substantial gains against USD the price of gold reacted and broke out of the fairly narrow range it had been trading in for the previous 3 weeks.  In the preceding week it had been on an upwards trajectory, but couldn’t break through the 1736 level despite several tests and thus a triangle had formed as shown on the daily chart below:

Usually in this chart pattern, when price breaks-out to the upside, it does so with some gusto and this was no different – the impact of a weaker dollar pushed the gold price through the resistance level at $1736 and helped to continue to drive it higher as stops were taken out and buy orders were triggered around 1740-1473.  The rally in gold finished about 1 hour after both EUR and GBP rallies abated.

Like all indicators, it is not fool-proof and so shouldn’t be traded off of alone.  We publish numerous articles explaining how external events impact the price of gold – the same rules apply to all and that is that these should be monitored and used to help guide your trading, but should not be the only determining factor.

You need to still be aware of the technical picture in gold itself – resistance & support levels, Fibonacci and Elliot Wave patterns, trendlines and moving averages will all play a part in exacerbating or limiting the impact of dollar-driven movements as we’ve highlighted above.

Having the EUR/ USD and GBP/ USD charts open throughout the day and monitoring for big movements should be a given.  Make sure that you check them before making trading decisions – they can influence when you enter or exit, or when you move your stop loss.

When you see a strong movement in either direction which converges with a technical breakthrough on the gold chart, jump on it – more often than not it will work in your favour and usually with large gains to be made.

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Each candlestick is composed of four values - high, low, open and close.

The body of the candlestick is the open and the close of the trading session (be that daily, hourly, 15 minutes, 1 minute, etc.). The high and the low of the session create the upper and lower shadows of the main candle body.

The candles are referred to as “White” which signifies a positive movement in price and “Black” which signifies a negative movement; although when these are displayed on charting packages they’re often shown as Green and Red.

This candle has no body - the open and the close is identical. There are variations of the Doji, but generally they indicate indecision in the market and that the trend may have run its course.

This is a three day pattern indicating a bearish reversal.  It always begins with a long white candle and always ends with a long black candle which must close within the body of the first session’s candle.

The second session candle can be black or white.  It is small in form (hence the star) and it gaps above the close (i.e. it opens higher than the previous close) of the first candle.

This is considered a strong reversal signal when it appears at the top of an up-trend

This consists of three black candlesticks of similar sizes, with consecutively lower closes and the close of each candle is near to or at its low.

There can be slight variations between these, such as the next session opening slightly higher (gapping up) than the close of the previous session. 

It doesn’t matter too much – so long as the candlesticks are of similar size and continues to make lower lows it indicates that there is a continuation of the trend.

Each session opening at the close of its predecessor, and the candles being long in length, indicates a strong down-trend.

Similar to the Three Crows, the Bullish Sanpei or Three Soldiers consists of three consecutive white candles which are of similar size and which make higher highs whilst closing near to or at their high. 

Again, there are variations to the patterns where gapping up or down between sessions is acceptable, so long as the candles continue to close higher than the previous high. 

Each session opening at the close of its predecessor and the candles being long in length, indicates a strong up-trend.

If the second and third session show decreasing higher high's following a long white candle in the first session (as per Variation 2 above), it signifies that the trend is reaching its end and to watch for a reversal.

If the sanpei is started by a small white candle, followed by a long white candle and then a small bodied white candle (as per Variation 3 above), this indicates uncertainty and a possible reversal.

When any variation of this occurs following a bottom, it is confirmation that a reversal is in.

This pattern reflects that price rarely moves straight up or down – there is a level of retracement before the movement goes on to a new high or low.

We rarely use Candlesticks on their own to execute a trade - we look for confluence with other indicators such as Fibonacci Retracement levels, natural support or resistance levels and trend line breaks.  However, the patterns above can give you a real clear indication that something is about to happen.

We hope you have found this article useful!  Read more from our "How to Trade Online" series here...

This article highlights what we believe to be the top five mistakes that traders make that can be avoided and increase your odds of success dramatically.

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It is not sufficient to look at a particular market, choose to either buy or sell and cross your fingers hoping for the best.  You must devote time to study your chosen market, decide whether the prevailing trend is up or down, what timescale this trend is over and where the points of support and resistance are.

You have to plan where you are going to buy or sell, where to place your stop loss and most importantly where to exit the trade.  Then, once the trade is planned and executed, you must show discipline – you made the trade for a good reason with solid justification, so any changes need equally solid justification.

There is a tendency to become too emotionally involved with a trade once it has been placed, and to want the trade to succeed too much.

Therefore, novice traders tend to let losses run too long, by either widening stops or ignoring signals that the trade is going wrong, in a desperate attempt not to lose money.  All that happens is when you do eventually lose, the loss is a huge one.

Learn to take small losses and you won’t ever get smashed by an enormous loss that blows you out of the water completely – the markets will always be there tomorrow, as long as you still have capital, you are in the game.

On the flipside, novices tend to get over excited when their trades move the right way and into a profitable position and the tendency is to close the trade out earlier than planned to “bank” the profit.  Of course there are times when this is the right course of action, but if your plan said close out at a certain point, unless something has changed, stick to the plan.

The other classic trading mistake is to “chase” losses – after taking a loss on a trade (hopefully a small, manageable one - see above!) the natural urge is to “put it right” by getting straight back into the markets and winning the lost cash back as soon as possible.

As we know, the only way to trade is by planning each trade and executing it carefully, jumping back in to the markets after calling a losing trade is NOT going to work.

The best advice is to take a few days out of the markets, regroup and plan your next trade.

Everyone loves the thrill of placing a trade and entering the market – many traders tend to overtrade, placing too many trades that haven’t been planned properly just to be “in the game” and part of the action.

We at UKGTE only make about 10-20 carefully planned trades a year as overtrading means more money is lost on commissions and spreads and the likelihood of losing is higher as trades are more frequent.

Money management is the key to real success – too many traders risk far too much of their trading pot on each trade, looking for the “big win” rather than gradual and controlled growth through smaller more manageable trades.

If you go seeking the “big win”, more often than not you will end up finding the “big loss” and then its game over.

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Most small traders (i.e. the home-based independent speculators) end up losing money when they trade the financial markets.  Statistics say that 95% of these traders lose over time – which is why the investment professionals refer to them as the “dumb money”. 

We’ve all been there at some time in our trading careers.  Some initial successes which hook you and then a run of losing trade after trade and not knowing why, or what you need to do to break the cycle…it doesn’t take long until your funds have expired and you feel stupid!

Do your research.  Decide what you are going to trade and stick with it.  Learn everything you can about it in as much detail as possible.  Even if you are going to be a purist technical trader, you still need to understand how the different macro-economic events impact your chosen market so that you don't get caught out.

We are gold traders and have been for many years.  We don’t trade anything else.  We have previously traded the forex and equity markets, but our passion is gold.  We know an awful lot about the gold trading market, but there are always new things to learn.  Our days are spent, alongside watching the market for trading opportunities, making sure we continue to learn more.

You have to plan where you are going to buy or sell, where to place your stop loss and most importantly where to exit the trade.  Then, once the trade is planned and executed, you must show discipline – you made the trade for a good reason with solid justification, so any changes need equally solid justification.

This sound obvious, of course, but it’s often traders doing exactly the opposite of this that accelerates them along the path to financial ruin.

If it’s clear that the trade is going against you, get out quickly.  In many cases a trade will go the wrong way at some point – it’s not always possible to pick the perfect entry point and so you need to allow room for the trade to breath as it confirms a bottom/ top or performs a natural retrace after a big move.  But if it’s clear that market conditions have changed it’s best to cut your losses and move on to the next trade.  Never widen your stop-loss position in the hope that things will turn around.

Conversely, when the trade is running the right way don’t panic and take your profits at the first sign of it stalling.  Sometimes this makes sense when the market is clearly turning or if your initial pre-trade assessment wasn’t accurate and so you are lucky not to have lost; but generally it’s wise to keep the trade open and just keep trailing your stop-loss position in behind the trade to stay in the game as long as possible.

If you look at our trading history, you’ll notice that (as of 27th Jan 2013) our average winning trade is $37 (or 370 points) and our average losing trade is $19 (or 190 points) – this, coupled with having more winners than losers, is why we are successful gold traders.

To be able to make the key decisions which keep losses small and maximise winning trades, you need to remove the emotion from your decision making.  There is a tendency to become too emotionally involved with a trade once it has been placed, and to want the trade to succeed too much.

Therefore, novice traders tend to let losses run too long, by either widening stops or ignoring signals that the trade is going wrong, in a desperate attempt not to lose money.  All that happens is when you do eventually lose, the loss is a huge one. 

That means that when the next trade is opened there is even more pressure to succeed or it may be the last one…and so on.

Removing emotion from trading decisions is a very hard discipline to master, but it gets easier as you become successful.   Following a method over the long-term which has paid dividends gives you confidence - when short-term setbacks occur they no longer affect your judgment.

Our own money-management strategy could be seen by some as quite aggressive, but it works for us as we’re so confident in our trading strategy after so many successful years. It is also geared in such a way that we will never lose more than we can stand on any single trade.

You need to find the right level that suits your funds, risk appetite, style and frequency of trading.

Whilst trading could, and should, be enjoyable you need to be careful that you’re not getting caught up in the excitement of “the gamble”.  All too often we see people placing numerous trades each day on multiple markets – placing too many trades that haven’t been planned just for the buzz of being in the game.

We usually make just 2-4 carefully planned trades a month (and some months we sit it out completely if there isn’t an obvious set-up) as overtrading means more money is lost on commissions and spreads and the likelihood of losing is higher as trades are more frequent.

When you do suffer the inevitable losses never jump straight back in to the market in an attempt to put things right – it rarely works and, if it does, it’s usually more luck than judgement.

Accept that losses are just as much a part of trading as winning.  You need to be able to deal with them without it clouding your judgement – we know this is sometimes hard, especially after a run of heavy losses.  If you’ve followed the other tips in this article, you shouldn’t be getting too many big losses in the future anyway!

Always step away from the market after a loss and reassess.  Regroup, plan your next trade and re-enter only when there is a setup on the table which fits your trading strategy.

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Gold continued the recent rally, making a higher high at 1296 and a higher low at 1284 in quiet trading.  Although the up trend is now becoming well established, on the short term charts we can see a "bearish RSI divergence" that suggests a minor correction is near.

Gold is trading well above the 20, 50 and 100 DMAs and the breakout of the down trend channel is a significant move, with the potential for a strong rally phase ahead.  A break above the 200 DMA, currently at 1310, would confirm that a new rally leg is underway.

The dollar weakness is helping to support gold, whilst equities remain well below their highs.  The recent surge in oil has rekindled inflation concerns, with central banks indicating low interest rates are here for a couple more years at least.

Support can be found at 1284-1286, 1280, 1270-1275, 1266-1268, 1250-1255, 1237-1240, 1220-1225, 1210, 1200, 1188-1190 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term.

Resistance can be found at 1294-1296, 1302-1305, 1326-1330, 1350, 1360 and 1377-1380.  The breakout above 1280 suggests an end to the intermediate term down trend, though it will take a close above 1300 to confirm a more significant rally is now developing.

Today's video for subscribers looks at the recent breakout in more detail and our thoughts for our next trade.

Gold pushed well above the 1280 resistance level yesterday, surging as high as 1294 before finding resistance.  The bulls need to keep the momentum going here and take out 1300 - with the dollar floundering, oil thrusting higher and equities lagging, this is the ideal environment for the bulls to take full control.

Gold is now above both the 20 and 50 DMAs and closing in on the major 200 DMA, which is currently just above 1300.  A move through this level should spark significant short covering and an acceleration in the move higher.

Support can be found at 1280, 1270-1275, 1266-1268, 1250-1255, 1237-1240, 1220-1225, 1210, 1200, 1188-1190 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term.

Resistance can be found at 1288-1294, 1302-1305, 1326-1330, 1350, 1360 and 1377-1380.  The breakout above 1280 suggests an end to the intermediate term down trend, though it will take a close above 1300 to confirm a more significant rally is now developing.

Today's video for subscribers looks at the breakout in more detail and our strategy for our next trade.

The bulls took control overnight, breaking through the 1280 resistance level and approaching the 200 DMA for the first time in a year.  The 50 and 20 DMAs are both pointing upwards and gold has decisively broken out of the down trend channel.

A move above 1300 is now the target for the bulls, which would see an acceleration higher as shorts start to close out in greater numbers.

The weakening dollar and equities have both contributed to the recent strength in gold, with the poor NFP numbers providing the boost the bulls required to break out of the well established down trend channel.

If economic data continues to disappoint, equities should correct further and gold will benefit.  The dollar is now trading well below the key 81 pivot and looks vulnerable to further selling.

Support can be found at 1280, 1270-1275, 1266-1268, 1250-1255, 1237-1240, 1220-1225, 1210, 1200, 1188-1190 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term.

Resistance can be found at 1288-1294, 1302-1305, 1326-1330, 1350, 1360 and 1377-1380.  The breakout above 1280 suggests an end to the intermediate term down trend, though it will take a close above 1300 to confirm a more significant rally is now developing.

Today's video for subscribers looks at the breakout in more detail and our strategy for our next trade.

Gold found buying interest on Friday following the second Non-Farms Payroll data miss in consecutive months, with the dollar tumbling below the key 81 level and equities and oil surging higher.

The gold bulls are refusing to let their breakout falter and a move above 1280 would see them firmly back in control after a fierce batle for supremacy over the past couple of weeks, with every rally forced back down and every sell off met with buying interest.

A move higher from here would see the "flat bottomed triangle" resolve with an upside breakout, an unusual occurence, with a "double bottom" at 1180 confirmed on the charts.

Support can be found at 1250-1255, 1237-1240, 1220-1225, 1210, 1200, 1188-1190 and 1180.  A break of 1180 would have serious bearish implications for gold and suggest a decline to 1000-1050 in the short term.

Resistance can be found at 1266-1268, 1270-1272, 1275-1280 and 1291-1295.  Holding support at 1250 and a
subsequent break above 1280 would suggest an end to the intermediate term down trend, though it would take a close above 1300 to confirm a more significant rally was developing.

Today's video for subscribers looks at the recent trading in more detail and our strategy for our next trade.