Last week, gold prices had its best weekly gain in over year on safe-haven flows. The precious metal also had the biggest increases in holdings in bullion-exchange traded products since July 2015. For 2016, gold ETFs have increased by 142.5 metric tons. The SPDR Gold Trust, the largest gold ETF in the world had its largest single day inflow since August 2011. Holdings climbed 2.71% on February 19th to 732.96 tonnes.
The yellow metal may have overextended the current rally as price already reached our first quarter medium-term $1,250 target. If we continue to see price consolidate here, key support may come from the $1,190-$1,200 zone.
Price action on the gold daily chart shows a key consolidation that has taken place following the near 20% rally that occurred since the December 3rd low of $1,045.40. The key range remains the $1,191 to $1,263 area. Since breaking out above the 200-day SMA at the beginning of the month, bullish momentum has benefited from a strong pullback with the U.S. dollar. Recent yellow metal weakness may return if we see the greenback recapture the 1.09 handle against the euro.
If gold prices have a daily close below the noted $1,190 support level, deeper support may come from the $1,170 area. If we see a major slide, price may find support from the 200-day SMA, which currently trades at the $1,132.40 level.
Price eventually may have another major leg higher from risk aversion and major resistance may come from the $1,282 area. It is around that area that price may form a bearish ABCD pattern.
The trade: Buy Gold at $1,190 with a stop loss at $1,175 and a take profit at $1,235. The Risk/Reward Ratio is 1:3