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Overall, gold has been grinding higher since the 1046.33 low but since breaking back above $1300 in December, the shiny yellow metal has remainedrangebound between 1300-1365. This year we have seen three failed breakouts which appeared in the form of spikes either side of the range. And if this week closes with a bullish hammer back within range, it will make it the fourth failed break in under five months. However, it is not the range itself that interests us, but the potential to enter short if we see a bearish breakout from it.
On the daily chart we can see how gold has stalled above its 200-day average. Admittedly its relationship with the 200-day average has been unreliable on recent visits, but the morning star reversal warrants mentioning as its a 3-day bullish reversal above key support. This means the downside break we seek is not without its obstacles, but the more obstacles a break can clear, the more significant it can become.
However, a break of 1301.56 would invalidate the pattern and break beneath the 200-day average to warn of further downside. Moreover, as there are few obvious areas of support to obscure our downside view, we’d be on the lookout for bearish setups using a low volatility entry.
With NFP out in a few hours we’ll step aside from gold and USD crosses, as both markets are vulnerable to whipsaws around this specific event. But for us the line in the sand is clear; a move higher takes us back within range (and removes gold from our watchlist) whereas a break of this week’s low puts gold firmly on our ‘shortlist’.
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