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Gold Triangle Presents Breakout Opportunity

Gold Triangle Presents Breakout Opportunity

2011-12-09 21:34:00
James Stanley, Currency Strategist
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Gold Triangle Presents Breakout Opportunity

By James Stanley

As traders wait on the sidelines for the next round of news, and rumors from Europe, the Daily Chart on Gold has settled in to a Triangle that presents a compelling breakout opportunity for traders.

Gold_Triangle_Presents_Breakout_Op_body_Picture_1.png, Gold Triangle Presents Breakout Opportunity

Created with Trading Station 2/Marketscope

After displaying one of the more pervasive trending moves since 2001, the ‘Yellow Metal,’ has faced some difficult times since peaking at 1920 in September of 2011.

One of the primary winds in the sail of Gold for 2010, leading into 2011 was the process of Quantitative Easing brought on by the US FOMC. Quantitative Easing, or ‘QE,’ as it has been dubbed, is the process by which a Central Bank will buy assets from smaller banks, or other financial institutions – with newly created money.

Think about the relationship with the quote in the chart above; XAU/USD.

The US Dollar – as the denominator, will generally weaken if all factors are equal and new US Dollars are being created. In the equation of XAU/USD – the denominator of USD essentially gets smaller as these new dollars are created. So the rise in Gold accompanying QE comes as no surprise.

What may be surprising is the brutal response in September that took the price of Gold below 1550. Since that point, Gold has maintained a relatively smooth trend line leading directly into the triangle with which we are now faced.

Breakouts can generally take place in any direction, and this opportunity on Gold is no different. The future move that trader’s may be looking to capitalize on here could very well be brought on by a yet unknown news announcement, or surprise event.

Next week can be a fun time in financial markets; but it may also be painful if we’re caught on the wrong side of a move.

Remember – trading opportunities are infinite, trading capital is not.

--- Written by James B. Stanley

To contact James Stanley, please email Instructor@DailyFX.Com. You can follow James on Twitter @JStanleyFX.

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