Last week, I identified a potential bullish Gartley pattern that supported the rally from the $1243 area all the way towards my initial target of $1,275. As expected, key resistance came from the confluence of the 50- and 200-day SMAs. Price is now tentatively forming a bearish Gartley pattern and traders should not be surprised if we see another round of gold selling.
Not much has changed on the fundamental side of the gold trade. The last leg lower in gold prices occurred after two months of consolidating around the $1300 area. The rally that was spurred by weak first quarter data and the tensions between Russia and Ukraine, have nearly been erased. The precious metal has been under considerable pressure since the Fall of 2012, that is when investors started to anticipate the reduction of stimulus from the Federal Reserve.
Price action on the 60-minute chart displays that point D of the bearish Gartley pattern may have been formed a few hours ago on the rally towards 1274, which is the 127.2% Fibonacci expansion level of the B to C leg and the 61.8% Fibonacci retracement of the X to A move.
The daily chart will highlight major resistance and a potential bearish ABCD pattern forming close to the 100-day SMA at around the psychological $1300 handle. If after today’s Fed decision, we see a spike higher in gold prices, we will look to fade any rally.
The trade: Sell Gold at $1,275 with a stop loss at $1,305 and a take profit at $1,210. The Risk/Reward Ratio is 1:2
Edward J. Moya
WorldWideMarkets Online Trading