Talking Points:
- Gold prices continue to trade within the bull flag formation that’s been operative since early-July.
- While the bull flag denotes continuation potential of the move-higher, prices have been under pressure after setting another ‘lower-high’ to kick off last week.
- If you’re looking for trading ideas, check out our Trading Guides. They’re free and updated for Q4.
In our last article, we looked at the bull flag formation that has built in Gold prices since early-July. At the time of that last article, Gold prices had just caught another jump-higher after a Federal Reserve meeting didn’t bring on the level of hawkishness that was anticipated and, in turn, brought weakness into the US Dollar. But as we warned, that move may not have staying power and traders would likely want to wait for either a top-side break of the bearish channel, or a deeper level of support in the effort of getting a cleaner entry.
We had specifically looked at the prior swing-low in the $1,312 range as a potential level of support; this was the swing-low in mid-September, and this was just above the prior swing-low set at the end of August. This brings up a potential setup in which traders can look to trade the trend-side bias in Gold prices whilst price action still remains within the channel. Traders can look at a stop below the $1,298.00 level of support, with an initial target to the prior swing-high of $1,327 to get a better than one-to-one risk reward ratio while price action remains in the flag formation. A secondary target can be set to the $1,342 level of resistance (the previous swing-high) to look for a better than 1-to-2.5 risk-reward ratio. And if we do, in fact, get the top-side breakout of the flag formation, traders can cast tertiary profit targets to the July swing-high of $1,375.04.
For traders that want to approach Gold more conservatively, they’d likely want to await a top-side break of the flag before investigating long positions. The same $1,342 level of resistance that set the previous swing-high could be an opportune zone to look for that next ‘higher-low’ level of support should Gold prices pose a top-side breakout. Alternatively, traders can wait for price action to move down to the long-term support zone in the $1,285 vicinity, which has multiple Fibonacci retracements and price action inflections over the prior seven months.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX
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