Nick McDonald: Gold on the move - Nonsense!

Despite recent headlines, gold prices have barely moved. Photo / AFP

As a trader I keep abreast of the headlines in the markets, usually by skimming major news channels such as CNBC, Bloomberg, Forbes and of course, NZ Herald. I delve further on occasions into the stories of the headlines that interest me but the headlines alone, usually help to keep me fairly well abreast of what is happening.

Most days however, there is a headline in regards to financial markets where I am left scratching my head in wonder and asking "who on earth writes these things"? One such recent and reoccurring example in the financial news relates to gold supposedly being 'on the move'. A couple of examples of headlines that suggest this include:

• NZ Herald - MH17: Gold prices skyrocket on uncertainty
• Wall St Journal - Gold Prices Soar on European Bank Worries

There are many similar headlines regarding gold in both major and minor publications plus others asking if or often claiming that, the 'bull market' on gold is back.

The truth of the matter is that gold has barely moved and is in fact lower on the day I write this, 25 July 2014, than it was just 12 months ago.

How can a market that has gone sideways for 12 months and ending slightly lower year on year, even have the words 'bull market', 'skyrocket' or 'soar' attached to them? The truth is that the headline cannot and should not be trusted. They should be read by all means like I do so myself, but they should all be treated with an element of doubt until you know the facts behind them.

Reading further into the 'Gold Price Skyrocket' article mentioned above, gold was up 1.3 per cent on the day - very far from a move worthy of the description. Gold was up 9.5 per cent on the 'calendar' year at the time but like I described above, still down over 12 months. This was not mentioned obviously as it is not what the article was about, it was written to show gold was skyrocketing.

Also not mentioned is that while gold was indeed up 1.3 per cent the day the article was written, just three days prior it was down around double that and was still trading lower than the price of that day after actually quite small 1.3 per cent move upward. Another point if I need to make more is that gold is still down 30-40 per cent of where it has traded in the years prior, depending on which point you decide to measure it from.

So should you stop reading the headlines? Initiating a headline boycott is not my intention; I read them myself and will continue to do so. My point is that they often tell just part of the story and sometimes this actually twists its way into something quite misleading. For example anyone who reads the headlines like I do, but does not follow the markets closely like I do, would have quite possibly been led to thinking that gold was doing well. Yet we have now established that it is not.

I do read for knowledge, I'm just very careful not to believe anything as factual. This is one of the reasons I love looking at price charts as compared to fundamental news to make my trading decisions. The charts tell me what is happening, plain and simple, nowhere to hide, all of it factual. In a bull market the price on the chart is going up and in a bear market the price is going down. In a range bound market like gold, the price is going sideways.

So where should the bulls be looking today? The Kiwi dollar is a potential start point in the midst of a multi-year bull run and the pullback over the last few weeks is a potential buying opportunity for any long-term bulls. One caution on the Kiwi though is if the US Fed so much as drops a hint at an interest rate rise, the Kiwi will see a solid, albeit I believe temporary, decline (depending on the extent of the rises and if the rates in NZ rise further too).

US stocks are on fire and this is where the best action is. Many brokers I talk to are reporting that the US index markets such as the Dow Jones and the S&P 500 have become their most traded markets and/or seen a significant rise in activity. This shows the smart money, looking for clear direction and trends, moving from duller sideways markets and into the markets with clear direction and greater movement.

If you want to trade a market that is doing virtually nothing but jumps around a bit on unanticipated news tied to unpredictable news events, trade gold. I urge you however, look beyond the headlines to what is really happening.

Nick McDonald is a New Zealander teaching everyday people how to trade the worlds markets via his company Trade With Precision.