Early in New York, Gold prices appear poised to continue the recent pullback that occurred after making a high of $1,224.50 at the beginning of the week. In my March 16th gold post, I explained how the precious metal was at risk of a short squeeze. The bearish trade was overcrowded and if we continue to see further bullish momentum, we may not see major resistance until the $1,235 - $1,245 zone. It is around that region that we could see the 200-day SMA respected or the formation of a bearish Gartley pattern.
Only a daily close above the $1,250 level will completely invalidate the bearish pattern. If upside remains firm, the next two levels of resistance will be the $1,272 level followed by the $1,300 handle.
Bearish bets that the Federal Reserve will begin tightening soon (my current forecast is for a September hike) may return if the FOMC Meeting Minutes are not as dovish as many are expecting. If downward pressure breaks the trendline that started with the $1,141.60 low, we may see bearishness target the $1,185 level.
The trade: Sell gold at $1,240, with a stop loss at $1,255 and take profit at $1,210. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading