Gold: Short Term Bearish Momentum Nearing Medium Term Bearish Support
The daily chart below shows the price of Gold over the medium term (since February 2012 to present). The precious metal is trading near 1304.35 (as of publication) in the current session and close to the middle of a narrow trading range for the day (current low near 1294.15 and high near 1321.55). Since we last covered the pair earlier this month, Gold has continued under the bearish resistance line (point 3 in magenta on chart) which was discussed as a likely continuation in last week’s coverage.
The short term bearish momentum is nearing the support line of a medium term bearish channel (point 2 in red) that has provided the range for the medium-to-long term trend overall. However, a short term bullish support line (point 4 in aqua) could provide a halt of the current downtrend.
If the short term bullish line fails, then the support line off the medium term channel (point 2) may be targeted and a bullish bounce could follow or reversal of the current bearish momentum (on point 2). If this support line fails to provide a bounce or reversal, Gold could descend a steep short term bearish line (such as point 5 in blue) which could develop and target previous lows near 1180.00 which was last seen in late June.
Alternatively, the current resistance line (point 3) could fail to contain the downtrend and if there is a breakout to the upside of this resistance line (point 3) a steep bullish continuation could follow (such as point 1 in yellow) with a target of the median line of the bearish channel (point 2).
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1322.00 with a Limit to take profit @ 1381.00 and a stop-loss @ 1287.00 Risk/Reward Summary: Limit risk = +59 points profit / (-35) points Stop-loss risk = Gain to Loss ratio = 1.68
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1289.00 with a Limit to take profit @ 1239.00 and a stop-loss @ 1329.00 Risk/Reward Summary: Limit risk = +50 point profit / (-40) Stop-loss risk = Gain to Loss Ratio = 1.25
Medium term daily candle chart: