Gold: getting its shine back? Critical S/R level might tell

Gold rallied strongly overnight and has moved back up to a critical S/R zone, in spite of the stronger US$. It gave a great 30 min trade during the US session and is now back trading near a congested S/R region and, more importantly, under a significant 2 1/2 year trend line whilst waiting for its next move. A bullish breakout might signal a base for the precious metal but, up or down, at least we have trend lines to guide us.

The FX indices remain divergent on their 4hr and daily time frames and I have been reminding traders how these periods often, but not always, produce better trading opportunities with lower risk / higher reward trades during the US session. A clear example of this can be seen with Gold from last night’s US session.

Gold 30 min:  a great trend trade during the US session saw a $17 pop in price:

Gold30min

Gold 4hr: this rally has brought Gold back up to a major region congested with three key S/R levels. These include:

  1. the $1,145 S/R level.
  2. the 61.8% fib region from the 2007-2011 swing high move.
  3. a bullish descending wedge trend line.

Gold4hr

Gold daily: price action is now poised below this potential breakout region. Traders need to watch for any break and hold above these three key levels:

GoldDaily

Gold weekly: this chart shows the 2 1/2 year duration for this bullish descending wedge quite clearly:

GoldWeekly

Gold monthly: price action has chopped around either side of this key 61.8% fib level but any move and hold back above this region wold be bullish.

GoldMonthly

Summary: Gold has been consolidating for well over 2 years now in a bullish descending wedge above the major 61.8% fib level from the 2007-2011 swing high move.

Many traders are bearish on Gold on the expectation that the US$ will continue to rally once US interest rates are increased. The recent rally in Gold may just be a relief rally prior to the next move lower but, for now, Gold is back trading above two major support levels; the $1,145 and the 61.8% fib. The bullish wedge trend line is above current price and traders would be well advised to keep any on price action around this level:

  • A close and hold above this wedge trend line might suggest that the bearish move on Gold has finished and a bounce higher, for however long, might be due.
  • Respect of this trend line might, however, suggest failure for any sustained relief-rally attempt and support bearish continuation.

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