Gold soared higher towards $1289 amidst fears and geo-political tensions aided by a comment made by the President of U.S on dollar being stronger partly because of him. There are fears that a war may spark off between North Korea and America as both the countries were very aggressive over their stance to defend their moves. War games often leads to a higher gold price but such spikes generally become key contenders for shorting as they are short lived as seen in previous episodes. There is no doubt gold will spark off towards very high levels in situation of a war but will it sustain is a very big question as they (war) cannot continue for longer duration.
On the chart-
Gold rose more than $30 breaking the channel on the upside, this channel a-b has a high of $1346 (a) and a low of $1220 (b) which now acts as a base or a good support for the yellow metal. In an uncertain situation gold can move in any direction irrelative of the fact that it may have broken support/resistances/channels. There are two scenarios on the movement of gold-
1. Gold is facing a resistance at $1289 (A) levels, if tensions are cooled off gold can slide down towards $1260 (B) which is now assumed to be a point of reversal in gold but it may find short term supports at $1278 and $1267 levels before finally giving up to the $1260 zone. Now if this price point fails the gold can fall downwards to $1235 which is a good support for the metal and such a move is unlikely seeing the demand for gold at lower levels.
2. Gold has broken the channel on the upside which is a very positive sign for the price movement. Gold closed above $1289 (1), this indicates it can move higher towards $1305 (2) which though is a very good resistance point on the chart. If this zone is successfully crossed we can have an upmove towards $1322 (3).
Such a large weekly bar is often followed with incremental gains so for short term a move towards $1305 is highly likely unless any sudden development on geo-political issues take place.
Bullish view – Bulls would be rejoicing the fact that they have crossed major resistances on the chart and have closed above the $1289 mark which indicates more positive momentum for them along with pertaining fears over a war which if becomes true it will sky rocket the gold prices. Comments on dollar being stronger wrongly is also a key motivator for the bulls. Price is expected to rise in such uncertainty in globe which also is a casing point for bulls.
Bearish view – Bears were trapped in the surge which took last week but they should still be happy as the $1289 level was not taken down decisively which means gold is losing steam on higher levels. Zone of $1289 is a fairly good resistance and a reversal is expected from here as it is assumed to be a cap for the gains unless war situation heats up sending gold higher. If tensions subside a reversal towards $1260 is widely anticipated.
On larger terms, Gold is in a volatile mode with neutral bias. Prices are expected to be very volatile taking into account the tensions which is reaching a boiling point. Gold can have a wild week with big moves expected on the either side, preferably on the upside.
Possible trades are on both sides, Gold can be sold at higher levels for targets of $1278 and $1260 with stop loss placed above $1305. Longer term target at $1235 and $1220.
Similarly, Gold can be bought around $1291 for the targets of $1305 and $1322 with stop loss placed below $1278. Longer term target at $1346.