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Talking Points:
- Gold Technical Strategy: Longer-term bullish > $1,200; intermediate-term bearish below $1,285.
- Gold prices have attempted to recover after the early-October sell-offs, but sellers continue to respond to each new high with more selling; indicative of a market seeking out longer-term direction.
- If you’re looking for trading ideas, check out our Trading Guides.
In our last article, we looked at price action in Gold as prices attempted to claw their way back from the out-sized hit taken earlier in the month of October. But as we noted in our prior article pertaining to ‘negative cycles’ in Gold prices this year; with no clear sign that the Federal Reserve may be near relenting on rate hike plans for 2016, Gold prices may see more downward pressure before the top-side trend might be able to run-higher.
Since that last article, price action in Gold has been rather erratic with multiple tests off of short-term support at $1,260, most recently on Monday of this week. After that most recent support-check, price action moved up to set a new short-term ‘higher-high, but sellers re-entered shortly thereafter, establishing a fresh short-term level of resistance around the $1,275-level. Also of interest in this zone is the projection of the prior bull-flag formation in Gold; and this serves as an example of prior support showing up as new potential resistance in a bearish technical formation.
This sets up the uncomfortable situation in which the longer-term trend and the near-term move are at odds. While the longer-term trend still retains a bullish quality above $1,200, the near-term trend is and has been bearish. For those looking to set up swing and longer-term positions, they’d likely want to wait for more confirmation of top-side continuation potential before looking to get long. Meanwhile, for traders with shorter-term approaches, the bearish move ‘could’ be workable provided risk management is in check. Meaning, traders would likely want stops inside of that recent swing high around $1,275, with targets tucked inside of the prior support hit at $1,250.
Swing positions with stops above the short-term highs around $1,276 would entail approximately $10 of risk with only $6 of reward potential (to near-term support). And in a market as coagulated as Gold is at the moment, such a risk-reward could be considered utterly unattractive.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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