Gold’s safe-haven role returned to start the trading week following the terrorist attacks in Paris. Last night, gold prices initially gapped just over $6 higher to $1,089.50. The advance came following a fourth consecutive weekly drop that almost took price to a near six-year low. The bearish backdrop remains the expectation as the Federal Reserve prepares to hike rates at its December meeting.
The gold daily chart displays the bearish butterfly pattern that has been in place since October 15th. Point D of the bearish reversal pattern is confirmed with the 127.2% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. The downtrend has now slumped below the 200-, 100- and 50-day SMA(s). Critical support remains the July 24th low of $1,072.30. A break below that major low could open the door for a slide towards the $1,040 zone.
If gold continues to rebound, initial resistance will come from the psychological $1,100 handle. If we see consecutive daily closes above the $1,140 level, further upside may target $1,180.
The Trade: Sell gold at $1,110 with a stop loss at $1,120 and a take profit at $1,080. The Risk/Reward ratio is 1:3