With the exception of the November 7th $30 rally, gold prices have been extremely bearish over the past three weeks. While the U.S. dollar has rallied against its major trading partners, the precious metal remains under pressure. According to Bloomberg, demand for gold backed funds are at the lowest levels since August 2009. The exchange traded products drop of 1.9 metric tons to 1,624.9 tons exemplifies the recent drop in demand for the yellow metal.
While the dollar is overbought and some traders are targeting a USD pullback that could be supportive for gold prices, the bearish trend with gold prices remain in place as long as U.S. yields continue to rise.
Price action on the 30-minute gold chart displays the overnight respect of the $1145 area. Currently price has stabilized and the recent consolidation is displaying the possible formation of a bearish butterfly pattern that could signal a reversal back towards the session lows. Both the X to A and B to C legs’ 127.2% Fibonacci expansion levels target point D at around $1160 region. If this pattern is invalidated, we could very well see price attempt to retest yesterday’s opening price of $1176.
As mentioned in prior posts, my targeted low to be made before end of year is the $1000 zone.
The trade: Sell Gold at $1,161 with a stop loss at $1,171 and a take profit at $1,141. The Risk/Reward Ratio is 1: 2
Edward J. Moya
WorldWideMarkets Online Trading