Last week, gold prices ended a 7-day winning streak after profit taking occurred after reaching the key technical $1,200 handle level. Price eventually had another major leg higher from risk aversion as global equities came heavily under pressure.
The yellow metal may have overextended the current rally as price already reached our medium-term $1,250 target. Yesterday’s drop was supported by both Chinese investor selling and rebounding global equities. Demand for the precious metal normally drops following the Lunar New Year holiday.
Today, Goldman Sachs also targeted the yellow metal to fall below the $1,000/oz within the next 12 months.
Price action on the gold daily chart shows that 14% rally that occurred in 2016 may have peaked at $1,263.90. The recent reversal may now find support from the heavily tested $1,200 level. A daily close below this level could find further weakness target the $1,160-1,170 zone. If we see a deeper drop, price may find support from the 200-day SMA, which currently trades at the $1,131.80 level.
The trade: Sell Gold at $1,215 with a stop loss at $1,225 and a take profit at $1,185. The Risk/Reward Ratio is 1:3