Today let’s explore how the phrase “Gold Likes Uncertainty” can lead you to profits. And/Or, help you avoid losses. We’ll start by thinking about this classic stock market saying:
The market climbs a wall of worry.
We all know the market doesn’t like unknowns. These days especially, it seems like every little shake and shiver in the news bumps the market up, or takes it down. Some of that is the result of the need for 24 hour news services to keep pumping out articles about “something.” If there isn’t a significant “something” they’ll blow up the importance of lesser news, so the talking heads on TV always have something to scream about. (My perception – Some of them are actually pleasant to listen to, but it’s hard to fall asleep listening to many of them.)
“Climbing a wall of worry” is a way to teach new traders not to be afraid of these small, relatively insignificant news story situations. As long as there isn’t something major in the news – like a war, or hurricane, or a new disease-of-the-month – seeing the news filled with stories about relative-nothing is actually a good sign. It means there’s nothing big to drag the markets down.
So “climbing” means the market works it’s way up with some effort. Slowly, slowly, creeping up. Watch your major levels, and as long as it’s above support it’ll likely keep creeping up until it hits significant resistance.
Big negative news, on the other hand, will generally send the market down. Telling the difference between big news and little news is the key. And why experienced traders do better in times of uncertainty than new traders, who haven’t developed their powers of judgment about what is BIG NEWS!!! and what is small news.
Small news, small uncertainties – market creeps up.
Gold, on the other hand, tends to rise in times of BIG NEGATIVE NEWS. That’s because BIG NEGATIVE NEWS creates BIG UNCERTAINTY.
And BIG UNCERTAINTY makes people nervous enough to trade cash for gold.