Preholiday cheer is perhaps already driving thin conditions to the start of the trading week. Since early October, gold prices have continued to pivot around the $1,200 handle. With equities and the U.S. dollar remaining strong, gold’s bearish trend, that extends back more than three years to the September 2011 record high of $1,923.70, is firmly in place. With the Fed remaining optimistic regarding the economy and signaling a rate hike next year, another gold slide could be at the mercy of another strong dollar rally early in 2015.
Gold fell 28% last year and with price appearing poised for another decline this year, traders should be careful looking for another excessive selloff. The yellow metal could see limited weakness because the ECB is expected to launch its own quantitative easing program. The expansion of money supply from the eurozone could provide a boost for precious metals, just like it did in 2008 when the Fed expanded their own books. Currently critical support remains the November 7th low at $1,130.40. If expectations become high for the Fed to hike at the end of Q2 in 2015, gold may fall towards $1,050.
With choppy conditions upon us, we could very well see price remain rangebound until Tuesday’s US final GDP reading and durable goods release. The gold 60-minute chart is showing a tight consolidation between $1192 and $1201. Overnight, we anticipate this range to be widened and possibly trigger a bullish Gartley pattern around the $1,188.90 level. It is around that area, we could see a bullish bounce that could trigger a rally towards $1,200. If price is able to take out $1,185, further downward pressure could target $1,162.
If bullish momentum rallies toward the 100-day SMA at $1,229, critical resistance may contain further upside.
The trade: Buy Gold at $1,188 with a stop loss at $1,184.90 and a take profit at $1,199.90. The Risk/Reward Ratio is almost 1: 4
Edward J. Moya