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Gold Prices: Aggressive Short-Setup Available

Gold Prices: Aggressive Short-Setup Available

James Stanley, Senior Strategist

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Talking Points:

  • Gold Technical Strategy: Flat, aggressive short-setup is available; but with a holiday-shortened week ahead, this may not be the time to push aggressive setups.
  • Gold has thrashed through every previously-pertinent support level, but given the recent retracement, this can provide down-side targets moving forward.
  • The longer-term bearish trend-channel is still very much active, and this can provide a near-term target for ‘bigger-picture’ short plays.

In our previous piece, we discussed the massive move in Gold prices and the unattractive prospect of pegging-in a position while prices were sitting at or near multi-year lows. As we mentioned in that article, there were essentially three choices, two of which were pretty unattractive with the third being the sidelines. And sure enough, since we published that article on Tuesday, Gold has found support in the region of the previous July low.

But this is actually a good thing, because as we mentioned in that article, the third approach that traders can institute in Gold right now was to wait for a more attractive setup to show. This way, at the very least, traders could look to get into the short-side trend with a relatively reasonable stop value, as opposed to just throwing the short position out there in a bleeding market and *hoping* that it ‘works.’

The level in question is one that we’ve been discussing for a couple of months now. We profiled this zone in the article ‘We’ve Just Run into a Major Support Level,’ shortly after intersection. This is the 50% Fibonacci retracement of the ‘big picture’ major move in Gold, taking the low from 1999 at $253.30 up to the high in 2011 at $1,920.80. This level comes in right at $1,087.05, and this has offered considerable price action support since we first crossed in July. After that July interesection, we saw continued tests of this level coupled with higher-lows until, eventually, bears became exhausted; and USD-weakness pulled Gold prices higher as the possibility of a September hike was getting priced-out of the market.

This gave us the short-term up-trend that found resistance at $1,190, but shortly after we hit that price, US rate hike expectations started to get priced-in for December and Gold has taken a massive ride as this theme has continued to develop. Gold is down 22 out of the last 27 trading days, and has moved lower by more than 10% during this most recent run. After re-approaching the vaulted $1,087 level, yet again, Gold found short-term support only to slip below, and eventually resist off of this level, to set a new five-year low in Gold prices. This was the point that we penned that most recent article.

But as USD-trends have pulled back, so has Gold, and this opens up opportunity for the trader. But to put this in context, we’re sitting in front of a holiday-shortened week as the United States will be observing Thanksgiving, and the following week will likely have much more motivation for risk-trends as we hear from the European Central Bank in a meeting that is expected to see an expansion of their QE program, followed by the last NFP report before we get to the December Fed meeting in which much of the world is looking for that first rate hike in over nine years.

So, the timing may be rough. But the technical setup for the short side could be there for those open to taking on aggressive entries, or for those that really want to get into the Gold trend.

The past two days have offered resistance off of the $1,087.05 level, so this becomes the basis for the trade. Stops for short positions can go above this level, and traders can then incorporate those previously-used support levels for upcoming targets.

The price of $1,063.84 is the new-low, and this becomes an initial target on this aggressive short-play. The projected trend-line making up the support-side of this two-plus year channel in Gold projects to approximately $1,050 over the next couple of weeks, and this could be a very opportune target given the news that’s expected for the week after next.

For those that want to take on a more conservative stance, next week may offer additional short-side opportunities given the lack of news flow. And we will certainly publish as setups present themselves.

Gold Prices: Aggressive Short-Setup Available

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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