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Today’s Trading Edge: Gold drops to four-week low ahead of Yellen’s Jackson Hole speech

Posted by WorldWideMarkets . on Aug 25, 2016 7:25:01 PM

WWM_GOLD_AUG_25_2016.jpg

Gold prices continued to remain heavy and fell towards the $1,325 level ahead of Janet Yellen’s speech on Friday.  The two-day gathering of central bankers provides a platform for policymakers to discuss global economic conditions and monetary policy.  Uncertainty over Yellen's speech has kept the dollar little changed, but has seen gold prices remain under pressure. 

If we see Fed Chair Yellen be explicit on the timing of the next rate rise, we could see the US dollar initially rally and gold prices slide.  However, if she says rates will not rise this year, we could see the dollar plummet and gold prices surge.  With other key central banks, such as the ECB, BOJ, BOE and RBNZ hinting that they will ease more, it will be difficult for the Fed to maintain a hawkish stance.   

Price action on the gold daily chart shows that the bullish rally accelerated after price rallied above all three key (200-, 100- and 50-day) SMAs.  Price has now tentatively respected a double-top pattern just above the $1,370 level and continues to respect a bearish butterfly pattern that formed earlier in July.  If price is unable to advance above the $1,335 level following Yellen’s speech, we could see a major pullback target the $1,300 region.  

If bullish momentum returns, key resistance will come from the $1,400-1,450 zone. 

The trade: Buy Gold at $1,301 with a stop loss at $1,291 and a take profit at $1,331. The Risk/Reward Ratio is 1:3

Topics: precious metals, gold, $GLD, Fed policy, Janet Yellen

 

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