Gold: Symmetrical triangle give-away: Buy the bullish breakout to 123.6% Fibo expansion level
- Gold catches a bid as US stocks and bond prices climb but gave up the highs and dropped to the 50% retracement of yesterday's hourly chart rally from down at $1,220 to the high of $1,239 and now consolidates at $1,230, in line with the 18th Oct double highs.
- Gold is currently trading at 1230 from a high of 1239 and up from a low of 1299
- Gold has been forced out of the symmetrical triangle and scored a bid through R3 meeting to supply and to fall back to the symmetrical triangle's topside.
Gold bulls have been making themselves known this month, and the precious metal has finally been reinstated with its haven status as investors have little option but to park their idle capital in gold. Bond prices are climbing again as a result of the sustained rout in global equities which forces yields lower and makes gold a more compelling option to safeguard cash. At the same time, the US dollar is making hard work of its recovery to the 96 handle where it has faltered yet again and failed to hold interest above the figure. The greenback fell on Tuesday back to the 95.80s, and while that is not a significant number of pips, but regarding conviction it is.
Stocks in trouble
Gold was appealing to investors, as was the CHF and Yen, when the Shanghai Composite Index SHCOMP, -2.26% was falling 2.3%. After a two day advance in the recovery of previous losses and that in turn lead to a substantial drop on Wall Street, both regarding risk appetite and stock indices. The U.S., benchmark stock indexes traded broadly lower, with the Dow Jones Industrial Average DJIA, -0.50% down more than 200 points as gold futures settled. The Dow went on to close -125 points, but at one stage it was as much as 550 points down.
From here, markets will be monitoring global geopolitical events, China, and indeed data /Central Banks, which brings us to the BoC, ECB and the US real GDP later in the week as the core scheduled market events. BoC is expected to hike, the ECD on hold and US GDP.
US GDP mini preview
Analysts at TD Securities explained that they expect a 3.7% advance in Q3 GDP, reflecting solid consumer spending (3.3%) and an outsized boost from inventories. "Aside from those categories, however, details are more downbeat with muted business investment and a significant drag from trade. Also in the release is core PCE, which we expect to rise 1.6% q/q, implying a 2.0% y/y print for September."
Gold levels
Gold only completed $11 of the symmetrical triangle projected $17.50 that would take the bulls to $1,251 with the confluence of the 7th Aug lows 2018 and Oct 2016 reversal lows. However, what is vital is that it is also the confluence of the 123.6% Fibo expansion level. It is quite typical of a symmetrical triangle rally to come back to test the support line and if it holds, for it to continue higher and hit the breakout target. The fact that the breakout occurred during the FX market's most liquid time speaks 'volumes', (see what I did there?).
With the price back to the start again holding the support line, there is a free space to enter and target the 123.6% Fibo expansion level with little resistance - (Placing a stop would be of course prudent according to one's own trading plan's rules). However, the caveat to this trade is that the greenback would need to give back some essential ground to the bears. Gold rallied around $16 on Tuesday and the dollar fell about 35 pips. A move of the same number of pips in the downside of the dollar would take it to the key 95.50 support level, 18th Oct lows.
On the flip side, the same theory applies and the precious metal could fall an equal difference between the triangles highs and lows ($17.5) down to $1,198 taking us to a few dollars short of the 50% retracement Fibo of 15th Aug lows to 15th Oct highs.