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Gold Respects Resistance - Sell Off Coming?

By , Head Forex Trading Instructor
21 December 2011 15:28 GMT

Gold Respects Resistance - Sell Off Coming?

Gold has been technically and fundamentally supported for several years. The technical patterns are beginning to break down which could mean the shiny metal has the potential to sell off from current levels.

A break below 1532 would confirm a new downtrend and offer a trader an entry to sell.

Gold_Respects_Resistance_-_Sell_Off_Coming_body_Picture_1.png, Gold Respects Resistance - Sell Off Coming?

(Created using FXCM’s Marketscope 2.0 charts)

Last week, Gold broke below the 40 week moving average for the first time since January 2009. This technical indicator is watched by many large institutions to give clues about trend direction.

Gold_Respects_Resistance_-_Sell_Off_Coming_body_Picture_2.png, Gold Respects Resistance - Sell Off Coming?

(Created using FXCM’s Marketscope 2.0 charts)

Additionally, Gold broke below the 200 Day Simple Moving Average last week which is another technically bearish sign. Earlier today, gold pierced the 200 SMA from the bottom side and immediately turned lower. This respect for these important moving averages indicates the appetite for owning gold at these prices is waning.

Therefore, we’ll look for technical reasons to sell gold. Since the low of late September 2011 is 1532, place an entry to sell 1 point below at 1531. Prices trading to these levels will indicate that prices are trading at levels not seen in 5 months which also indicates technical weakness. Place a stop just above a recent swing high on a break below 1531.

Additional Resources

Professional Trader’s Best Friend: Trends

Trading with Moving Averages

How to Trade with Moving Averages

Trading Breakouts

---Written by Jeremy Wagner, Lead Trading Instructor, DailyFX Education

To contact Jeremy, email jwagner@dailyfx.com. Follow me on Twitter at @JWagnerFXTrader.

To be added to Jeremy’s e-mail distribution list, send an email with the subject line “Distribution List” to jwagner@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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21 December 2011 15:28 GMT