The trajectory of gold should be improving as broader risk-off sentiment reignites across markets. However, given the preponderance of conflicting headlines ranging across a variety of major themes—drastically divergent views for the outlook of U.S. and global economic growth, ongoing trade conflicts, the possibility that interest rates will rise again, Brexit uncertainty and political stresses in the U.S.—traders of the yellow metal appear to have adopted a wait-and-see attitude.
That’s beautifully illustrated in the price action and momentum of the precious metal.
Gold has reached an equilibrium, as trading has been in a holding pattern for two weeks. Conflicting indicators reflect the broader market dynamic.
While the 50 DMA crossed above the 200 DMA triggering a golden cross, both the MACD and the RSI fell from an overbought condition, triggering sell signals. Strictly speaking, since the pause is within an uptrend, the presumption is that the breakout would be on the upside, which will then confirm the bullish pattern.
Conservative traders would wait for a decisive upside breakout, followed by a return move that successfully retests the support of the pennant, with at least one long green candle following a red or small candle of either color.
Moderate traders would wait for the breakout. They might even wait for the return move, but for an entry closer to the presumed support of the consolidation rather than for evidence of its integrity.
Aggressive traders may risk a long position now, in order to catch the potential upside breakout.
Stop-loss: $1,288, bottom of pennant
Target: $1,296, top of pennant
Risk-Reward Ratio: 1:3