In recent days I have seen more arguments in favour of the USD despite the latest round of quantitative easing. At the same time there has been some ground given up in the gold price as momentum unwinds from a push to a new high (just) for the year. For mine I feel that gold has the broad trend in its favour and the USD doesnt so I will continue to remain broadly bullish on gold. This isn’t to say that both the USD and the gold price can’t rise of course but the world seems to prefer it when they act as the reciprocal of one another. The retreat from near the $1,800 mark has been reasonably sharp so waiting for a trough to appear would be a good idea before racing back in – I suspect we will see the trough form on the outside of one of the main volatility bands of the gold price:
The second blue line from the top is the +1.25 SD level of the 200 day MA while the 3rd from the top is the 200 day MA itself. The moving average is important in this case because it’s giving traders the trend direction. As you can see it’s starting to move higher. For the real trend though I would check out the weekly chart which in this case especially will give you a very clear idea of the prevailing mood of the market.
The reason the volatility band may be important is twofold. Firstly, these are a good support level for trending instruments and are an excellent signal of trend continuation when respected by price moves. Second, the volatility band has already moved above the previous trough which means that if it does support price we will then have a wedge pattern confirmed. This will likely attract more interest to the consolidating gold price looking for a breakout from the trading range.
The real benefit of finding a trough at this level would be that it allows an early entry into the base of a consolidation move rather than waiting for a breakout. In addition the placement of a stop below the trough formation and/or the volatility band may improve the risk:reward proposition of the trade beyond that achieved by waiting for a breakout from the top of a subsequent wedge formation.
Importantly the trader should wait for the trough to form before moving. It’s tempting to try to beat the market to the punch but the way the market behaves at the moment I think the more evidence in your favour the better.