Gold
© Ilya Naymushin / Reuters
  • Gold Technical Strategy: Intermediate-term mixed; Near-term gaining bearish momentum, testing support.
  • After setting a new swing-high just-under $1,245 last week, Gold prices have begun to show ‘lower-lows’ and ‘lower-highs’.

In our last article, we looked at the continued run-higher in Gold prices that started around the Federal Reserve’s December rate hike and had run all the way-in to the beginning of February. And while this was a significant move that brought in more than $100 of gains to Gold prices over a month-and-a-half, this was still relatively minor in consideration of the previous bearish trend that began on the night of the elections and drove Gold prices lower by more than $210.

But since the beginning of February, strength in the U.S. Dollar has begun to show again, highlighted with yesterday’s Humphrey-Hawkins testimony from Fed Chair Janet Yellen, in which she commented that it’d be better to raise rates sooner rather than later. This helped to expedite some additional strength into the Greenback, and Gold prices have been tipping deeper into support as this strength has started to show more prominently.

At this stage, Gold prices are in an interesting zone of support from $1,215.17-$1,219.02, with $1,219.02 functioning as the 38.2% retracement of July-December bearish move. Also of interest for this zone is the two separate iterations of resistance that it offered to the top-side move in January, first on January 17th and then again on January 22/23. The 50% retracement of that same July-December move is at $1,248.83, and given the fact that bulls were unable to overtake this level, the long-term setup in Gold prices could still be classified as bearish, with January being but a retracement of the bearish trend.

For timing the bearish trend: Traders will likely want to await a break of this support zone to indicate that the bigger-picture bearish move may be on the way back. Given that this current zone of support functioned as resistance on two separate occasions, this could be a novel area for bulls to re-load; and while many currency pairs are driving down to fresh lows to account for this recent rush of Dollar strength, Gold prices are still catching support, and, at the very least this is deductively ‘not bearish’.

So, while a bigger-picture breakdown isn’t yet imminent in Gold prices, the prospect for continuation is there, particularly if the theme of U.S. Dollar strength continues in the coming weeks which will likely usher in a break of this support zone, at which point traders can look to sell ‘lower-high’ resistance in the vicinity of prior support.

Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX