Potential signal:
- I am a buyer of gold on a break of Thursday high, with a stop loss at the Thursday low.
- I would aim for $3400.
Gold markets initially sold off during the trading session on Thursday, only to turn around and show signs of life again. Ultimately, this is a market that I think continues to look very interesting, because we have been so brutally sold off during the last couple of weeks that I think a bit of a bounce makes sense. After all, the longer-term trend is still very bullish, and we still have a situation where traders are trying to jump into the longer term uptrend, and the fact that we bounce from the 50 Day EMA of course is a very bullish sign.
Technical Analysis
The technical analysis for gold is still very strong, despite the fact that the last couple of weeks have been somewhat tough. The fact that we initially plunged only to turn around and show signs of strength again is a very good sign, especially considering that we look like we are trying to form a bit of a hammer right at the crucial 50 Day EMA. The 50 Day EMA is widely followed, and therefore it makes a lot of sense that technical traders will be on board.
The next barrier that I see to overcome will be the $3264 level, which is basically the high price during the Wednesday candlestick, because if we can get those people on the wrong side of the market, we could kick off a bit of a short covering rally. The best thing about a short covering rally like this is that it goes with the longer term uptrend, which is what you should be doing in the first place.
There are multiple reasons for gold to go higher, not the least of which will be the fact that central banks around the world are likely to start cutting rates. Some already have, some will in the future. Beyond that, central banks have been buyers of gold for some time, and that only adds to the potential upward momentum. On the other hand, if we were to break down below the bottom of the candlestick for the trading session on Thursday, then you would have to assume the gold $3000 level for support.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.