As the U.S. dollar is trading at a four-month low, gold prices appear to be gaining strong momentum despite a strong bull market with stocks. Historically, rising stock prices sway investors away from safe-haven trades such as gold.
Price action on the gold daily chart shows that price is now tentatively skyrocketing above the 200-day SMA. If the bullish stance keeps on going, key resistance may come from a potential bearish Gartley pattern at the $1,260 level. Point D is targeted by both the 70.7 Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C drop. If this pattern is invalidated, further upside could target the $1,300 handle.
If the U.S. dollar rebounds, the precious metal could pare its recent gains and find support from the $1,200 handle.
The trade: Buy Gold at $1,222 with a stop loss at $1,215 and a take profit at $1,243. The Risk/Reward Ratio is 1: 3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading