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Gold Has Lost its Lustre

With a more than 1.25% decline in early trading on April 22, it's looking like the bullish phase in gold--which began in mid-March--is coming to an end.

June gold futures (GC) have traded as high as 1309 and as low as 1142.4 in 2015, and have been hovering around the 1200 level in April.

The (prior) ascending trend channel provided a buy signal earlier in April. From that level the price moved higher briefly but then fell to a lower swing low. Since April 10 gold has been moving in a small triangle pattern, which is now broken with the fall on April 22.

The height of the triangle (conservatively) is 20. Subtracted from the breakout price of 1193, the price target is 1173 based on the formation.

Figure 1. June Gold 6-Hour Chart


Short-term momentum is down, and with the month-long uptrend questionable, for the moment, being on the sidelines or short is likely the best play. One should also consider that all April is just a big consolidation; that means the triangle breakout isn't particularly important unless the price also moves completely out of the April range. The triangle target indicates it will, but currently the price remains above the April 14 low of 1198.9.

If this triangle breakout turns out to be false, and the price rallies back above 1195, and ultimately above 1210, that produces a potential bullish outlook. If the price continues to rally above 1220 the uptrend will present opportunities to get long, possibly near 1210 on a pullback as that resistance level could provide support in the future. This would be similar to the potential trade discussed in Trading the Canadian Dollar Reversal.

On the other hand, if the price continues to fall below 1175, the bottom of the triangle--near 1190--is likely to provide some resistance and a potential shorting area on bounces higher.


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