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- Gold Technical Strategy: Longer-term up-trend in question; $1,200 is major support.
- The U.S. Dollar has been on a rampage, and this has kept pressure on Gold prices. There are likely a plethora of stops at or around $1,200, so expect a 'blow-off' move should this level become tested early next week.
- If you're looking for trading ideas, check out our Trading Guides .
In our last article , we looked at Gold prices attempting to claw back from support. But as we noted, just below near-term support was a longer-term level that would likely exude some level of interest in the coming days at $1,200. This is the 38.2% Fibonacci retracement of the long-term move in Gold prices, taking the low of the Bretton Woods-fix at $35/ounce up to the 2011 high at $1,920. This level had provided swing-low support in Gold prices in May of this year, just ahead of another top-side extension that lasted for $175 of run over the next five weeks.
But since that high was set at $1,375, Gold prices have seen some pressure build. First producing a downward sloping channel that came-in as a bull flag formation . But in early October, as Loretta Mester started talking up the prospect of near-term rate hikes, the Dollar strengthened, Gold prices fell and support became a moving variable around the $1,250-level.
Gold prices' sensitivity to the Greenback was well-illustrated on the night of U.S. Presidential Elections . As the Greenback dropped when initial polls began to come-in, Gold prices spiked higher to find resistance at $1,337. But around Midnight Eastern Time, the Dollar began to reverse and this drove Gold prices lower, eventually running back down to that $1,250 level that had served as support in October.
But Dollar strength hasn't yet calmed. The Dollar has run-up to fresh 14-year highs , and Gold prices have continued to dwindle near long-term support values. At $1,210.85 we have the 50% Fibonacci retracement of the Dec 15 low to the July high, and this had previously set swing-low support for Gold prices. But as we noted in our last article, it's the $1,200 level that's likely going to be garnering traders' attention in the weeks ahead.
Given the continued persistence of sellers to hit virtually any rip-higher here, traders would likely want to wait for that 'big' support level at $1,200 to be tested before looking to line up long positions. Given the amount of stops that are likely around that level, should a break come-in, a quick move lower should be expected; perhaps driving as low as $1,180 before buyers might be able to turn the tide. If this happens, traders can wait for prices to drive back up above $1,200 to prove that bulls may be able to re-take control.
If price action breaks below the 61.8% Fibonacci retracement of the Dec low to the July high at $1,172, traders will likely want to re-evaluate the bullish stance in Gold prices.
Chart prepared by James Stanley
--- Written by James Stanley , Analyst for DailyFX.com
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