Gold Trading Strategy
Buy at 1230.00. Take a profit at 1280.00. Set a stop-loss at 1205.00.
The gold price may show no clear direction until Wednesday, as investors are awaiting clues on the future Fed interest rate path. With a rate hike likely on Wednesday, gold may approach the nearest support level at USD 1235 in the short term. Afterwards, it could turn north again, aiming 1250-1255. If the FOMC commentary turns out dovish, gold may even break this resistance opening the way to USD 1280. In this case, upside potential would obtain additional support from technical situation as the 50-period moving average would cross the 200 MA. It has already crossed the 100 MA in November. An upside trend on gold is also justified by the economy heading into a slowdown and political uncertainty in the eurozone.
Factors supporting gold may however worry stock markets. The U.S. S&P 500 index, that is still playing with 2600 pts., may finally fall below this support, opening the way to 2510-2530 pts. Still, after the FOMC meeting, that may be slightly dovish, stocks could rebound, perhaps testing 2600pts. Softer FOMC rhetoric is not necessarily good news for cyclical assets, as it stems from worries about the real economy. Thus, downside risk prevails for S&P 500 in mid-term horizon.
Stocks seem to await FOMC also in Asia. In short term, the Hang Seng index seems well supported at 26000 pts., which level should hold assuming no hawkish statement from FOMC. The index is however moving within a downward trend and the short term upside potential is limited. The nearest level where traders are likely to take profit is located at 26800 pts.