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Gold Has More Downside Before Reaching Value Area

By:
James Hyerczyk

December Comex Gold eased last week to finish at $1331.50, down $3.40 or -0.25%. The price action was driven by the conflict between the bullish investors

Comex Gold Bars

December Comex Gold eased last week to finish at $1331.50, down $3.40 or -0.25%. The price action was driven by the conflict between the bullish investors betting on the further easing of interest rates and the bearish investors banking on increased chances the Fed will raise rates before the end of the year.

Bullish gold investors are hoping for additional stimulus from the European Central Bank and the Bank of Japan that would keep negative interest rates around longer. Negative interest rates are beneficial to gold prices because they neutralize the opportunity cost of an asset that doesn’t pay interest.

Bearish gold investors see more downside potential because the recent strong U.S. labor, retail sales and housing starts data has helped increase the chances of a 25 basis point rate hike by the Fed, perhaps as early as September. This news is making the U.S. Dollar a more attractive investment, making dollar-denominated gold more expensive to foreign investors.

Like the Fed, gold traders are approaching the market with caution. There is still uncertainty over when the Fed will make its move with some saying it will wait until after the November election. In the meantime, the market is slowing moving lower, erasing some of its earlier gains as it works its way into a key retracement area.

Weekly December Comex Gold

Technically, the main trend is up according to the weekly swing chart. It’ll take a move through $1384.40 to signal a resumption of the uptrend and a trade through $1207.00 to turn the main trend to down. Meanwhile, the market seems poised to make a normal correction in a bull market.

The main range is $1207.00 to $1384.40. Its retracement zone at $1295.70 to $1274.80 is the primary downside target. This should be considered a value zone. Since the main trend is up, buyers are likely to come in on a test of this zone so be patient over the near-term, or you may end up overpaying for gold.

Based on last week’s close at $1331.50, the key area to watch this week will be the price cluster at $1335.00 to $1336.40. This area will control the direction of the market this week.

Overtaking the downtrending angle at $1336.40 will put gold in a bullish position. This could create enough upside momentum to challenge the next downtrending angle at $1360.40.

A sustained move under the uptrending angle at $1335.00 will indicate the presence of sellers. The first target is last week’s low at $1318.50. The weekly chart is wide open under this price with the next major target, the 50% level at $1295.70.

Watch the price action and read the order flow at $1335.00 to $1336.40 all week. Trader reaction to this level will tell us if the buyers are returning or if the selling pressure is increasing.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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