Since the September high, has ‘only’ managed to shed 7.6% in value (if we look past the 9.1% it achieved by Tuesday’s low at the $1236.32). It was thanks to Wednesday’s that gold bugs were given a reprieve from bears as traders were positioned for a more hawkish meeting before broad USD weakness ensued. So, with momentum generally favoring the bears, we’re seeking a suitable opportunity to join them.
The daily timeframe has provided two prominent bearish legs since the September highs, which were separated by a sideways range a little reminiscent of a continuation triangle. We stop short of calling it a triangle as such patterns require prices to coil and converge towards an apex before breaking out. But using traditional Western methods to measure a potential profit target for the range, it suggests an initial downside target around $1228. Currently trading around $1260, this leaves potential for a decent reward to risk ratio if gold ‘falls’ into place.
It was last week that a bearish range expansion candle came crashing through $1260.46 support but, due to it being particularly wide-ranging candle which also closed outside of the lower Keltner band, we preferred to wait for a lower volatility entrance. And whilst prices did manage to squeeze out a marginal new low, price action exhibited signs of exhaustion with two Doji candles outside of the lower Keltner band.
Wednesday’s FOMC meeting prompted short covering to help gold revert towards the mean, although as good as the rebound looked on the day, $1260.46 resistance is close at hand as a potential obstacle. That it has since printed a Rikshaw Man Doji suggests a hesitancy to break higher has put gold on our radars for a potential shot opportunity.
We’d need to see a decisive break lower to suggest near-term momentum had turned in line with the daily trend. That said, we’re also open for this to drift higher as part of a low volatility pullback. In some ways this could be preferable as it increases the potential reward to risk ratio. If we do see a break above yesterday’s high, the $1263.63 – $1267.02 lows provide a zone of potential resistance which is also where the 20-day moving average resides.
It’s also possible that narrow-range day following the rebound from the lows may be a little premature, so be on guard for a break higher. But gold will remain on our watch list until momentum strongly indicates it has switched to the bull camp.