Gold prices were only modestly higher despite all the risk aversion that hit the financial markets. Many traders believed that concerns regarding a Greece exit should have propelled the precious metal higher, but yesterday prices closed only about half a percentage point higher.
While the gold future contract price is hardly higher, physical demand is picking as the UK royal mint announced a significant pickup of purchases from Greek customers. The e-mailed statement highlighted gold coin demand surging twice the five-month average.
Price action on the gold daily chart emphasizes a key consolidation that has prices trapped between the $1,141 and $1,232 range. Price is also tentatively finding significant resistance from the $1,195 zone. If bullishness is able to pick up and take out the psychological $1,200 handle, we could see price target the upper boundaries of the recent range.
To the downside, immediate support comes from the $1,160 area. If the longer-term bearish trend reaffirms itself, we could see price target the $1,144 level. It is around that area that price could form a bullish ABCD pattern. Point D is targeted with the 141.4% Fibonacci expansion level of the B to C leg. If this pattern is quickly invalidated and price breaks below the lower boundary of the noted range, we could see gold prices have a major slide target the $1,050 zone.
The trade: Buy Gold at $1,208 with a stop loss at $1,198 and a take profit at $1,228. The Risk/Reward Ratio is 1: 3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading
