The Fed’s willingness to be “patient,” with further hikes, and “flexible” with the balance sheet, ending the automatic pilot on which the US central bank was coasting, sent the dollar into a selloff and gold to an eight-month high. The precious metal is climbing for the fifth straight day, its longest streak since December 2017.
Its uptrend is obvious, but it may have extended itself and needs a correction, as traders second-guess the yellow metal's pace and cash out.
Gold prices
Gold has been trading within a rising channel, since it bottomed at the 1,160 level, in August. However, since November, the rising channel took a steeper turn, accelerating the rate of ascent.
It might be a good idea to wait for a pullback before entering a long position. Aggressive traders may even enter a contrarian short.
While the rally pushed the 50 DMA over the 200 DMA, triggering a golden cross, and the 100 DMA is edging toward the 200 DMA, for a bullish formation, it doesn’t mean that the rally is a straight line up. While the RSI is already oversold, it is below its early-January peak, providing a negative divergence and suggesting prices will follow lower. Stochastics are oversold and pointing down.
Trading Strategies
Conservative traders would wait for a return to the bottom of the original channel, unless the higher channel – supported by the top of the lower channel – demonstrates substantial support, with at least one long, green candle engulfing a red or small candle of either color.
Moderate traders would wait for interest at the bottom of the higher channel, as described in the conservative section.
Aggressive traders may enter a contrarian short, relying on the resistance of the top of the higher channel, where supply has been overcoming demand, pushing prices back to the bottom of the channel.
Trade Sample – Short:
- Entry: $1,321
- Stop-loss: $1,324
- Risk: $3
- Target (NYSE:TGT): $1,300
- Reward: $19
- Risk-Reward Ratio: 1:6