Early in New York, gold prices appear poised to decline for an eleventh consecutive day despite not making fresh lows over the last four sessions. The precious metal is being heavily sold by hedge funds as money managers have been increasing their bets that the Federal Reserve will begin tightening soon.
Price action on the daily gold chart shows that recent slide extending back to the January 22nd high is currently finding support from the March 11th low of $1,146.50. With the short gold trade becoming overcrowded, we could see a short squeeze support a climb higher towards the 38.2% Fibonacci retracement level at $1,175, before the downward trend resumes.
If downward momentum prevails and the noted low is breached, we could see a quick fall towards the 2014 low of $1,130.40. Eventually, price could make a fresh 5-year low with critical support coming from the psychological $1,100 handle.
The trade: Sell gold at $1,174, with a stop loss at $1,181 and take profit at $1,160. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading