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Gold Prices Stage Another Bearish Break: Watch $1,250

Gold Prices Stage Another Bearish Break: Watch $1,250

James Stanley, Senior Strategist

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  • Gold Technical Strategy: Intermediate-term mixed, short-term bearish.
  • Gold prices opened the week by breaking below support at $1,261. FOMC is on deck for Wednesday, and of recent, Gold prices have rallied aggressively after rate hikes in December and March.
  • If you’re looking for trading ideas, check out our Trading Guides. If you’re looking for ideas more short-term in nature, please check out our IG Client sentiment.

In our last article, we looked at bearish continuation in Gold prices. After running above the $1,295-level in the middle of April as the post-March rate hike rally extended further, Gold prices have begun to reverse and have continued to head-lower as we march towards another FOMC rate decision on Wednesday of this week. This is relevant because over the past six months, the two rate hikes offered from the Federal Reserve have appeared to function like kerosene on a scalding hot market, further driving the bullish move in the wake of the Fed’s policy tightening.

On Wednesday of this week we get the Federal Reserve rate decision for the month of May. There is scant expectation for any moves here, and likely, the driver will come from the details in the statement and just how confident the Fed might be for future rate decisions; with emphasis likely moving towards the bank’s June meeting. There’s no press conference scheduled for Wednesday’s meeting, so the details will likely be treated with a heavy dose of inference from market participants, and this can carry a strong bearing on Gold prices.

As of this writing, Gold prices are in the midst of yet another support break; falling below the $1,261 level that we looked at last week as our ‘s3’ zone of support. We’ve also seen a trend-line break with near-term resistance showing-up around prior support.

Gold Prices Stage Another Bearish Break: Watch $1,250

Chart prepared by James Stanley

For those looking to execute bearish strategies in Gold, they’d likely want to wait for a re-test of the $1,261 area as some element of resistance before initiating short positions. The zone around $1,250 is a confluent area of support, and this could denominate the necessity of patience on the current setup. We had identified this as our ‘s4’ level of support in our last article, and if this does, in-fact, become broken, the prospect of a longer-term bearish move will look considerably more attractive. But until then, traders will likely want to look at profit targets inside of that support level, which could make a one-to-one risk-reward ratio impossible if using the prior swing-high at $1,268.

Gold Prices Stage Another Bearish Break: Watch $1,250

Chart prepared by James Stanley

If a re-test of $1,261 is not in the cards, bearish strategies could be re-directed towards the $1,250 zone by allowing price action to break-below, at which point $1,250 can be re-assigned as ‘lower-high’ resistance in the effort of trading the continuation move-lower with a risk-centric approach.

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

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