By: Chris Wilkinson of Longleaftrading.com
The overall fundamental theme for gold is still bearish. With the dollar rallying and commodities being dollar denominated, all else being equal, the price of commodities should decrease. The market looks to be pricing in low inflation to come and gold is used as an inflationary hedge. This is a bearish fundamental factor.
What we saw last week was very opportunistic upward movement that is helping set up the much larger downward trend that I foresee coming. The cash injections from the ECB and China should be short lived as the market will once again see these central banking efforts will not have a large impact on global inflationary numbers. Let’s look at the charts to plan our trade.
From the first chart above, you can see that the market is currently holding steady at the 61.8% retracement level of the measured downward move from the highs of 1255.9 down to 1130.30. From the second chart you can see the bullish Fibonacci move that has a price target right in confluence of our downward trend line. We want to get positioned for shorts after we have seen price action reject off of the downward trend line and take profit area and confirm the previous downward fib is still valid by seeing price action trade under the 50% retracement level you see in the first chart drawn as a yellow line. Once we see price action below that level at 1193.5 again it should be safe to assume the downward trend and trade to an objective of 1100 even. This is an extremely aggressive position considering the size of the move so my suggestion is to trade the intraday half back shorts once we get the validation of the downward trend.
The Fibonacci strategy I used here provides very specific entry and exit points. It is possible to apply on all markets to help find higher probability trades. If you would like to discuss any of the following you can reach me at 888-272-6926 or e-mail at [email protected] . I look forward to speaking with you and assisting you with your trading objectives.
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