ICmarkets
Short

Our take on the yellow metal...

FX:XAUUSD   Gold/U.S. Dollar
142 0 1
Although the precious metal ranged around $43 last week, price closed just over a $1 lower than the previous week’s close at 1231.9. What this did was form a rather large selling wick (similar to the previous week) mid-way between weekly supply drawn from 1307.4-1280.0 and demand coming in at 1205.6-1181.2. From our perspective, both areas hold approximately the same weight, and as such, the best we can do here is to keep an eyeball on the two zones for possible direction this week.

From the daily scale, trade ended the week closing within a small demand formed at 1223.7-1233.3. In light of the back-to-back weekly selling wicks and recent close lower (see above), this demand is likely to cave in with little supportive structure seen below until demand coming in at 1181.4-1200.7. This demand, nonetheless, commands respect owing to its first test forcing price to highs of 1284.4, and the fact that this demand was formed from the break of a considerable daily high to the left made on the 15th October at 1191.4.

A quick look at Friday’s trading on the H4 chart shows that the yellow metal broke through a H4 support area coming in at 1240.5-1243.1 (now acting resistance), and ended the day stabbing through H4 demand (see blue arrow) drawn from 1227.6-1232.2. In view of this and what we have noted above regarding the higher-timeframe picture, where do we go from here? With some longs likely squeezed out of the market from the current H4 demand, and demand just below likely consumed due to the long tail seen marked with a red arrow at 1226.1, we feel Gold             is heading lower today/this week. The next available H4 demand, as far as we see, comes in at 1216.4-1222.0. Beyond here, price looks cramped and shows little active demand on the H4 timeframe until we reach daily demand at 1181.4-1200.7.

In light of the above points, our plan of action today will be to watch for price to close below the current H4 demand. If this comes to fruition, we’ll then move to step two which is watching for a retest of this area as supply followed by lower timeframe confirmation. Should all of the above come into view, we’ll look to take partial profits at the H4 demand below at 1216.4-1222.0 and reduce some risk. From thereon, assuming price continues lower of course, we plan on trailing the remaining position down to the top-side of daily demand at 1200.7.

Levels to watch/live orders:

• Buys: Flat (Stop loss: N/A).
• Sells: Watch for price to consume 1227.6-1232.2 and look to trade any retest seen thereafter (lower timeframe confirmation required).
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