Late in NY, Gold prices rallied $22.30 to $1,187.70, taking price to a three-month high. The rally was triggered after tame inflation in the U.S. supported the growing belief that the Federal Reserve is going to have a hard time agreeing to raise rates this year.
Price action on the Gold daily chart shows that since forming a bullish butterfly on July 20th with the $1,072.30 low, bullish momentum has accelerated once price broke above the 100-day SMA. Now riding a fourth consecutive daily rally, price is tentatively finding resistance from a bearish ABCD pattern.
Point D of the reversal pattern is targeted with the 161.8% Fibonacci expansion level of the B to C move. If valid, we could see price have a pullback towards the $1,175 area. A deeper correction could find support from the $1,145 zone.
If bullishness continues and the reversal pattern is invalidated, we could see price target the psychological $1,200 level. Further upside may come from the $1,220 level.
Downward momentum may eventually return, but for now, the precious metal may trade range bound between $1,150 and $1,250.
The trade: Sell Gold at $1,195 with a stop loss at $1,205 and a take profit at $1,175. The Risk/Reward Ratio is 1: 2
Edward J. Moya is the Chief Market Strategist for edmoya.com, an educational website for foreign exchange and commodity traders. He has over 15 years of investment industry experience in forex, stocks, options and futures. At edmoya.com, Mr. Moya writes daily currency and commodity analysis and has authored numerous articles on trading using both technical and fundamental analysis for major financial publications. He is a contributor of technical and fundamental analysis in currencies and commodities to SFO, Market News International, and Forex Factory.
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