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Gold Prices Move Up $50 from the Lows: Short-Squeeze or Start of Something More?

Gold Prices Move Up $50 from the Lows: Short-Squeeze or Start of Something More?

2017-01-05 14:15:00
James Stanley, Strategist
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  • Gold Technical Strategy: Intermediate-term (past 3 months) bearish, short-term (past month) bullish
  • After dropping by more than $200 in the six weeks after the election, Gold prices are up over $50 in the past three weeks.
  • If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at the extreme bearishness that drove Gold prices lower by more than $200 in the six weeks after the Presidential election. As we warned, price action in Gold was looking considerably oversold, and given a fresh ‘higher low,’ traders looking to take part in the bearish move would likely want to wait before chasing the setup. Since that article, Gold prices have moved up by more than $50, breaking multiple points of resistance along the way; and now on a short-term chart Gold prices are looking downright bullish.

Gold Prices Move Up $50 from the Lows: Short-Squeeze or Start of Something More?

Chart prepared by James Stanley

To traders watching only short-term charts, this could be attractive for bullish trend-strategies. However, by scrolling out a bit, we’ll notice that, at least at this point, this move has been but a drop in the bucket of the bigger picture bearish move. On the daily chart shown below, we can see how this recent run has only retraced 23.6% of the post-election bearish move.

Gold Prices Move Up $50 from the Lows: Short-Squeeze or Start of Something More?

Chart prepared by James Stanley

Given the context of the two above observations, traders would likely want to continue to classify Gold as bearish but in a current state of consolidation or retracement. After Gold prices had become so incredibly oversold in the month of December, a 23.6% retracement of that move could easily be classified as short-covering that’s squeezing other shorts as prices move-higher.

As we had written in our last article, traders can use the level at $1,188.10 to invalidate the bearish move in order to begin investigating bullish strategies; with secondary invalidation at the vaulted psychological figure at $1,200. Traders looking to trade with the bearish move will likely want to wait for short-term support to give way to provide the indication that sellers may be able to re-take control. The price action swing at $1,160.50 could be used for such a purpose, followed by the Fibonacci level at $1150.72.

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

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