Gold has pulled back steadily over the last two weeks and prices now sit on the 50% Fibonacci retracement level. With the commodity locked in a powerful medium-term uptrend, keep reading about what we're watching in order to go long on gold.
Given gold’s bullish medium-term backdrop, we continue to watch for signs that another leg higher is in the cards. However, as the USD continues to strengthen on Yellen’s increasingly hawkish tones, a strong change in momentum is needed to halt this retracement. Moreover, with prices now back below the interior structure formed at the April and July highs, traders must wait for clear confirmation that this retracement has ended before going long.
From our perspective, only a decisive breakout from the September retracement channel will offer a strong enough signal to move long. For those who question this call, cast your eyes to the two bar-reversal pattern witnessed on September 25/26. Despite the shares breaking higher on range compression — which formed at resistance-turned-support, no less — a sharp selloff over the following sessions has destroyed the notion that this mid-trend retracement phase is over.
With prices now sitting on the 50% Fibonacci retracement level ($1,281), there is once again every chance that gold may indeed rally higher from here. In fact, at the time of writing, zooming into the hourly candle chart reveals that after breaking below $1,281, prices then quickly rebounded above this level. Were prices to close here, it would prompt a false break pattern, offering further evidence that a move higher could be in the cards.
However, as per above, until a decisive break of September’s established retracement channel is apparent, traders should beware calling the bottom of this pullback. In the meantime, we recommend trading the range of the retracement channel and focusing on lower timeframe trade setups to do so.
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