Yesterday, gold prices rallied on solid physical demand from Chinese investors who just returned from celebrating the Lunar New Year holiday. After hitting a session high of $1,219.90 and tentatively respecting the 100-day SMA, gold prices have settled closer towards the $1,205 region.
The gold daily chart above shows that yesterday's rally, which was the biggest gain we've seen in a few weeks, also found resistance from the 23.6% Fibonacci retracement level of the $1307.80 high to $1,190 low move.
Gold prices may remain vulnerable if continued strong data comes out from the U.S. and expectations grow for the Federal Reserve to raise interest rates sooner than later. Currently we may see a consolidation period for gold prices between the $1,180 support level and $1,230 resistance zone.
If we do see prices for the yellow metal rise to the 200-day SMA, which is currently trading around $1,248 level, we may look to enter a longer-term bearish bet.
The Trade: Buy gold at $1,205, with a stop loss at $1,193, and a take profit at $1,230. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldwideMarkets Online Trading