Gold prices initially rallied after the highly anticipated Greek vote surprised market investors, with an emphatic NO vote on the referendum question to yielding to further austerity. The rally was short-lived as a strong U.S. dollar persuaded market investors away from safety bids for bullion.
Price action on the gold daily chart shows that the bearish trend has been firmly in place since price broke below the 50-day SMA on June 22nd. A bullish ABCD pattern formed at the end of last week, and the rebound is tentatively respecting the downward sloping trendline that started at point A of the pattern. If downside revisits point D, which is the 141.4% Fibonacci expansion level of the B to C leg, we could see deeper support target the $1,148 level.
If gold continues to weaken and trades below the $1,148, the key downside target will be the 2014 low of $1,130. This level should be heavily defended, but if it breaks, further support may come from the $1,050 region.
While the strong dollar initially mitigated gold’s rally, that trend may not be able to prevent demand for the yellow metal. If we start to see risks of contagion stemming from a Grexit and a delay with the Federal Reserve will hike rates in September, gold could be ready for a major surge.
If we see price respect the $1,150 area, a key bottom could be made and gold prices may target a major rebound towards the $1,190 area. Major resistance will come from the $1,195-$1,205 zone, consecutive daily closes above that level could open the door for a rally towards $1,230.
The trade: Buy Gold at $1,150 with a stop loss at $1,130 and a take profit at $1,190. The Risk/Reward Ratio is 1: 2
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Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading
