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Gold Prices Run Towards Big Support at $1,200; Is a Break Imminent?

Gold Prices Run Towards Big Support at $1,200; Is a Break Imminent?

2016-11-18 17:55:00
James Stanley, Currency Strategist

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  • Gold Technical Strategy: Longer-term up-trend in question; $1,200 is major support.
  • The U.S. Dollar has been on a rampage, and this has kept pressure on Gold prices. There are likely a plethora of stops at or around $1,200, so expect a ‘blow-off’ move should this level become tested early next week.
  • If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at Gold prices attempting to claw back from support. But as we noted, just below near-term support was a longer-term level that would likely exude some level of interest in the coming days at $1,200. This is the 38.2% Fibonacci retracement of the long-term move in Gold prices, taking the low of the Bretton Woods-fix at $35/ounce up to the 2011 high at $1,920. This level had provided swing-low support in Gold prices in May of this year, just ahead of another top-side extension that lasted for $175 of run over the next five weeks.

But since that high was set at $1,375, Gold prices have seen some pressure build. First producing a downward sloping channel that came-in as a bull flag formation. But in early October, as Loretta Mester started talking up the prospect of near-term rate hikes, the Dollar strengthened, Gold prices fell and support became a moving variable around the $1,250-level.

Gold prices’ sensitivity to the Greenback was well-illustrated on the night of U.S. Presidential Elections. As the Greenback dropped when initial polls began to come-in, Gold prices spiked higher to find resistance at $1,337. But around Midnight Eastern Time, the Dollar began to reverse and this drove Gold prices lower, eventually running back down to that $1,250 level that had served as support in October.

But Dollar strength hasn’t yet calmed. The Dollar has run-up to fresh 14-year highs, and Gold prices have continued to dwindle near long-term support values. At $1,210.85 we have the 50% Fibonacci retracement of the Dec 15 low to the July high, and this had previously set swing-low support for Gold prices. But as we noted in our last article, it’s the $1,200 level that’s likely going to be garnering traders’ attention in the weeks ahead.

Given the continued persistence of sellers to hit virtually any rip-higher here, traders would likely want to wait for that ‘big’ support level at $1,200 to be tested before looking to line up long positions. Given the amount of stops that are likely around that level, should a break come-in, a quick move lower should be expected; perhaps driving as low as $1,180 before buyers might be able to turn the tide. If this happens, traders can wait for prices to drive back up above $1,200 to prove that bulls may be able to re-take control.

If price action breaks below the 61.8% Fibonacci retracement of the Dec low to the July high at $1,172, traders will likely want to re-evaluate the bullish stance in Gold prices.

Gold Prices Run Towards Big Support at $1,200; Is a Break Imminent?

Chart prepared by James Stanley

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

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