Gold Prices Stage Significant Support Break: Buyers Beware

2016-11-23 17:29:00 James Stanley

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Gold Technical Strategy: Gold prices have broken below a key support level at the $1,200 level.
A break of this level raises the question of sustainability of the prior up-trend. As the ‘reflation’ trade gets further priced-in to markets, this can carry continued pressure on Gold prices.
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In our last article, we looked at the continued down-trend in Gold prices as buyers had come-in to help form support above a ‘big’ support level at $1,200. But as we warned, with a combination of a surging U.S. Dollar and a support level that’s held very well over the prior months, the possibility existed for a quick break of $1,200 to lead to a deeper move, as stops on long positions sitting just below this support get triggered, creating even more supply in the market as those stops go into execution.

This happened earlier on the morning as the U.S. Dollar continued its rampant run in the post-Election backdrop. As the Greenback surges to even-higher 13-year highs, traders would likely want to try to avoid standing on the train tracks by opposing this trend; and this can open the door to down-side continuation strategies in the coming weeks should Dollar-strength continue unabated.

For traders looking to trade a turn in the trend, near-term resistance levels could be sought out at prior levels of support, such as the $1,200-level that we’ve been watching, or a bit-higher on the chart at the $1,210 level that we had looked at last week as a short-term support inflection (also 50% of the up-trend move from the December lows).

For bigger-picture or longer-term approaches, caution would likely be warranted as we’ve just staged a significant break of a long-term level just ahead of a U.S. holiday. The December FOMC meeting will likely be telling for intermediate-term trends in the Greenback; and despite the world’s excitement behind price action with everything US at the moment, there is a very valid reason for the Fed to try to avoid eliciting too much strength in the greenback; and this could, possibly, be a positive for Gold prices. For now, we have the possibilities of a new bearish trend, and traders would likely want to approach bullish setups with a great deal of caution.