Gold rallies could fail

Gold, 240 min

Weak dollar has raised the demand for the physical gold while the futures markets have been cautious ahead of the Federal Reserve policy FOMC statement on Wednesday. This has kept the gold bulls in check and the rally above $1270 on Thursday was quickly turned into a pretty sizeable and fast drop to the current levels where the price of gold has attracted some buying today. Now that ECB’s Mario Draghi didn’t bring new strong QE measures to the table in the last week’s meeting the Fed Chair Yellen has less pressure to refrain from raising the US rates. This should increase the probabilities of a US rate hike and therefore keep the lid on gold. However, Fed’s still not likely to hike rates before the latter part of year and even then only gradually. This could mean serious selling pressure on gold still waits a little longer. Also, the uncertainty related to negative rates, a new financial experiment should create some support for gold.

Technically the price of gold has been moving sideways between a $1202 – $1206 support area and a resistance at $1288. In the monthly chart gold has created two pin bars that signal supply and demand having been in a relative balance in March and April. Such decidedness usually means that the price is turning lower after a move higher but now price didn’t drop after the first bearish pin bar which suggest that there is some support for on gold as well. In other words this market is undecided and could range more before settling to a directional trade. The very recent price action however seems to me short term bearish with Thursday’s candle forming a shooting star and price following lower on Friday. This indicates that traders are likely to sell rallies into resistances.

I’m therefore looking for sell signals in gold at or inside my sell area near 38.2% and 50% Fibonacci levels between $1244 and $1254 with Target 1 at: $1227 – $1238 and Target 2 at: $1190 – 1204.70. Using strict risk management is recommendable as usual. If you don’t know what to look for as trade signals or how to manage your trading risks professionally you are welcome join to my free webinars to learn more.