Chart Of The Day: Why Gold Is Once Again Headed Lower

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Yesterday, Fed Chair Jerome Powell said that the US no longer needs the accommodative policy that’s been in place for years due to a weak economy. He went on to say that the US is “a long way from neutral” interest rates, suggesting there is considerable room for rate hikes. Investors immediately dumped defensive growth and foreign assets in favor of US assets, pushing the dollar to a sixth-day of gains for a climb totaling more than 2 percent. Today, however, the Dollar Index is trimming gains, falling about 0.15 percent, as traders take profit.

Overall, the dollar needs to prove it’s still in an uptrend, which will be achieved by scaling above the 97.00 level, peaked at August 15. Gold, meanwhile, has been moving sideways, with a downward bias, since late August.

Chart Of The Day: Why Gold Is Once Again Headed Lower

XAU/USD Daily Chart

Note that while the precious metal’s slide from Tuesday’s 1,208.31 high did not fall below its shorter-term uptrend line since September 28, the RSI did, suggesting momentum is reversing back toward the range bottom. The MACD also provided a sell signal, with its shorter MA (blue) crossing below its faster MA (red), as recent price data is weakening compared to older information.

Trading Strategies – Short Position Setup

Conservative traders should wait for a clear breakout and sit out the whipsaws that tend to follow them.

Moderate traders would wait for the shorter-term uptrend line since September 28 to be broken, followed by a return move to test that uptrend.

Aggressive traders may short now, relying on the channel top’s demonstration of resistance on Tuesday and the MACD and RSI, as well the dollar strength. However, of course, a close below the shorter-term uptrend line would reduce risk.

Sample, Moderate Trade:

  • Entry: $1,208 – after the shorter-term uptrend line has been violated and the price retests it from below, as well as Tuesday’s peak resistance.
  • Stop-loss: $1,2012, range-top resistance
  • Risk: $4.00
  • Target: 1,180, range-bottom support
  • Reward: $28
  • Risk-Reward Ratio: 1:7

Sample, Aggressive Trade:

  • Entry: 1,200 – psychological, round number resistance
  • Stop-loss: $1,202, the whole number above today’s $1.05 intraday high.
  • Risk: $2.00
  • Target: 1,180, Range-bottom support
  • Reward: $20
  • Risk-Reward Ratio: 1:10

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