Gold saw a crack of more than $14 on the back of hawkish commentary by the U.S Fed after it raised interest rates by a quarter of a percentage. Gold was trading higher in the early part of the week, and after the event it started a downward journey which broke through multiple supports but still is above a very critical mark of $1247 which if gives way selling might intensify. The pattern of movement in prices was a copy of what happened in the week before thus a similar weekly candle was formed again and such a candle again shows uncertainty over the movement of prices.
On the chart –
Gold saw buying during the start of the week which resulted in a double top formation and gold skidded towards new lows after a hawkish commentary by U.S Fed over its possible rate hike programme. Thus the fall was a combination of both technical and fundamental aspects. Formation of lower highs and lower lows was clearly visible which might be a dampening factor for prices ahead. The circle denotes the range gold is trading in. With above situations we have 2 scenarios –
1. Gold yet again formed a double top which was followed by the U.S Fed event resulting in a massive technical and fundamental correction from the highs. After such a failed attempt and a fall, gold can slide lower to $1247 (1) which is a massive support and a key to further price action. If such a support gives way, gold can see a further fall towards $1227 (2) which again continues to support the prices though a less popular area compared to $1247.
2. Gold continues to slide on technical grounds over fundamentals which is not a negative for the metal, rather it is a healthy correction. For gold to go up it must first cross $1259 as demonstrated on the circle. If gold manages to cross the mark, it can head higher towards $1269 (A). If this area is crossed successfully prices can move forward to $1278 (B). And if situations favor the prices it can even head higher to $1293 (C) though such a move so quickly from the current prices is unlikely.
Bullish view – Bulls should be happy as gold’s correction is broadly technical over negative fundamentals as according to Fib retracement from highs gold is expected to fall towards 38.2 area which is $1249-$1251 (which is also the low of the circle) from where a possible reversal is very much likely. This action is positive for the bulls and new highs can be expected once the upmove begins. A buy in dips strategy is advised if the prices fall towards the Fib’s 38.2 levels.
Bearish view – Bears were loaded with ammunition as they once again eroded the prices from the highs copying the earlier week’s pattern. Selling intensified once $1269 gave way thus indicating a bearish mood for the gold prices. If such price action continues gold can slide lower to its long time support area of $1227.
On larger terms, Gold still remains neutral with a positive bias. Prices are expected to move on either side but setup favors upside after the technical correction ends and there are no major events which might affect the prices largely on either side thus sideways with upward bias.
Possible trades are on both sides, Gold can be bought above $1259 for the targets of $1269 and $1278 with a stop loss placed below $1247. Longer term target $1293. A buy on dips is advised if the prices fall towards $1249-$1251 as a reversal is likely from there with stops placed below $1241.
Gold can be sold below $1251 for the targets of $1247 and $1227 with a stop loss placed above $1259. Longer term target $1208.