Gold – A Short Term Sell

The first quarter is over and among other things; GLD/XAU-USD still remains a key asset to watch. Since the last article published showcasing the downside bias in Gold, prices are down by almost -3.40%, trading near the $1214 handle, shy off the $1200 level of interest.

The big question heading into the next quarter is how will GLD/XAU-USD behave, especially when it is quite likely that the markets will see another rate hike from the Fed, as early as April, according to some Fed members but highly unlikely while June seems like a more probable date. Of course, the hawkish view on rates needs to be supported by ‘healthy’ NFP reports and the US economic performance in the first quarter of 2016, which would mark a full three months under tighter monetary policy conditions.

While the technicals point to a short term slump in GLD/XAU-USD, on a fundamental basis a hawkish view on the US economy supported be good fundamentals should help keep the GLD/XAU-USD markets subdued. One of the biggest reasons for GLD/XAU-USD rally during the first quarter was not just the seasonality but the rising uncertainty in the global markets, which saw a flight to safety. Additionally, the talk of negative interest rates with the BoJ cutting rates to -0.10% added to GLD/XAU-USD rally.

Will Q2 of 2016 see a similar tone in the markets? And is GLD/XAU-USD likely to move higher? Say, $1300? Or will prices resume their bear trend?

It’s hard to forecast a specific price level, but from what the charts show at this point, a higher low will most likely bring forward a bullish view in GLD/XAU-USD which could then be confirmed by prices posting a new high, above the previous 1265 – 1280 levels.

What we do know for now is that GLD/XAU-USD is likely to remain biased to the downside in the short term, confirmed by a break below the $1200 psychological support. The rising wedge pattern pointed out in the previous analysis shows a validation with the breakout from the rising wedge pattern and a likely dip to $1200.

Current price action shows a potential for a head and shoulders pattern that is likely to take shape. So far, the left shoulder has been established near the $1250 handle followed by a move higher to 1283.5 marking the head. The dip to $1200 off the rising wedge pattern will see a dip back to the neckline to establish support. An eventual rally off this $1200 back to $1250 will showcase a lower high and confirm a move to the downside, simultaneously forming a right shoulder.

If this head and shoulders pattern is confirmed, we could expect to see GLD/XAU-USD follow through to the downside towards the initial minor support at $1185 – $1177 and eventually to $1148 – $1150 level. The chart below illustrates this point.

 

From a seasonality point of view, GLD/XAU-USD prices are known to pull back into the periods of mid-March through end of April ahead of a surge in the periods of June – August before another slump ensues. Combining the timing of the seasonal trends in GLD/XAU-USD alongside the developing fundamentals and the technical levels should offer traders some very interesting set ups into Q2 of 2016.

This article was written by Dave Goldstein, Head Analyst of Binarybrokerz.com