Gold has been on a slow methodical up trend in recent weeks. This comes as no surprise against the backdrop of slow global growth. Global Growth has fallen short of projections for several quarters to date and the uncertainty in the markets is the driving force behind an overall uptrend in gold.
Technical Analysis
The XAU/USD index as of the 15 of July 2016 is at 1,337.19. It had a tumultuous day starting at around 1,333 it traded sideways then moving marginally lower only to rebound by around midday to close out at its current level. Compared with other closing periods for the past week this has been the one of most modest closing days. Usually the closing day of the week experiences huge volatility with a strong sell off ending the period with a strong retraction of some of its gains.
The daily movement in the XAU/USD comes of off a week of a distinct down trend to stabilize in the latter half of the period. The backdrop of an overall uptrend in the price of gold for the past few weeks may indicate that the past week was merely a correction in a larger uptrend and it is likely that in the week to come gold may trade to the upside. It wouldn’t be surprising to see the bulls entering the market in the coming week using this week as the early entry point for a long trade.
Trade Risk
The risk on a possible long trade for the XAU/USD depends on the point of view. When looking at the chart from a weekly perspective it seems poised to the downside with it touching a level not seen since the 7 of June 2014. However it is minimal when looking towards the coming week as there aren’t much threats to the downside. The momentum to the downside has been firmly contained by floor at around $1,333. The index has failed to breach this level twice meaning there is some consensus in the market for gold to be bought at this level. Additionally this floor at $1,333 also represents the high of another uptrend that ended on the 26 of June, 2016. A breakthrough to the downside is possible but only under the right circumstances where the market sentiment becomes that of uncertainty.
Things to watch
It would be good to watch the DOW Jones or the S&P 500 over the next few days as movements going sideways or bearish increases uncertainty and that what’s driving the price of gold.
The coming week has a lot to look out for. Members of Federal Reserve will be making several speeches and reports on various factors of the economy. New Zealand along with Britain and Canada will release their consumer price index. Additionally The European Central Bank will make a rate decision. Even if there isn’t much change in the reports what is important is whether or not there is uncertainty. This is what will create volatility in the gold market and ultimately drive the price higher with time. A sense of stability from the reports would immediately feed into a correction towards a downtrend.
Verdict:
Open position with a long trade starting early after resumption of trading and closing mid-week. Go short if the value falls below $1,325 and exit on the first sign of sizeable retraction.