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Gold Prices Pop, but is the Bull Back in Force?

Gold Prices Pop, but is the Bull Back in Force?

2016-10-19 16:57:00
James Stanley, Strategist
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Talking Points:

  • Gold Technical Strategy: Longer-term bullish uptrend remains in question; short-term bullish reversal.
  • Gold prices put in an aggressively bearish move on the back of an uptick in FOMC hawkishness; and this theme doesn’t appear to be near capitulation just yet. Gold bulls should be really careful of chasing additional top-side entries here.
  • Is the Gold bull back? More information needed, but a break above $1,286 would be very encouraging.
  • If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at the continued descent in Gold prices after the prior support zone around $1,300 had given way. As we discussed, while the longer-term trend was still bullish in nature, the shorter-term momentum was decisively bearish. We also noted that Gold was likely at least a bit oversold at the moment, and traders looking for a ‘big short’ would likely want to wait a bit for confirmation that such a move could come about.

Since then, the pre-Brexit low at the psychological $1,250 level has continued to highlight support after the quick ‘panic move’ on October 6th. And after testing that level yet again on Monday of this week, Gold prices have popped higher, leading to the potential setup in which short-term momentum may be starting to move in the direction of the bigger-picture, longer-term trend.

Traders would likely want to be cautious of chasing this short-term move higher here; as the potential certainly still exists for a furthering of the ‘negative cycle’ that we discussed in our last article. The premise of which is the fact that trend-side moves (bullish) in Gold prices this year have usually been quick and violent as the Fed relents from hawkishness or rate hike plans. And then as the Fed ramps up hawkishness again, Gold prices have grinded lower, much as we saw from the highs of July to the ‘big break’ of support in early October.

This recent uptick in FOMC hawkishness doesn’t appear to be near capitulation just yet: For those that do want to look at the trend-side move higher, stops can be looked at below the prior swing of $1,240; but that would amount to a near-$30 stop with current prices – meaning that a target at $1,300 would be a mere 1-to-1 risk-reward ratio.

Also complicating matters for top-side approaches are the potential resistance levels sitting just above current price action. At ~$1,278 we have a trend-line projection from the support portion of the prior bull flag. Just a bit higher between $1,283-1,286 we have two different long-term Fibonacci levels; and at the zone around $1,300 we have the prior swing-low.

These levels could potentially be used for resistance in short-term bearish strategies.

Gold Prices Pop, but is the Bull Back in Force?

Chart prepared by James Stanley

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

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