Potential Gold Set-Up

Hi all, thought I'd take some time today to illustrate a gold trade I have been watching for the last two or three days.

As you can see in the chart above, we are clearly in a kind of bearish wedge on the hourly chart. This is illustrated by the classic narrowing of the channel.

Now, I understand fully that gold has been rising based on the back of fundamentals and not technicals and primarily as a result of the increased trade tensions and monetary easing by central banks (i.e. lower interest rates = less return on money --> investors buy gold).

However, when we consider the confluence of factors involving the wedge, and the relative strength index is overbought. It could be possible that gold is about to enter a kind of downtrend, or at the very least, a correction back to the $1450 level.

We must also remember that the wedge now also encapsulates the $1500 level for gold, and this could act as a very significant resistance level.

Gold is trading at multi-year highs and therefore, some kind of correction could be in order.

In the chart below, I have indicated (using the white arrows) some potential entry points which may materialise, and I have zoomed in and added some trend lines to show direction. This is on the 15-minute chart (which admittedly, is not overbought).



The white lines show the path which I currently consider most likely; a break of the bottom segment of the wedge and then a return to the trend only to fail to pass the resistance. This would then cause a greater wave of selling.

If you zoom in, you can probably see the location of my pending trades and can then make a judgement about whether I have been overtly risky in my positioning. I tend to prefer aggressive entries when trading rather than trying to guess whether resistances or supports will continue to hold. However, this does make me vulnerable to false breakouts - which is why we must always manage risk with stop losses.

The red line shows a less likely scenario in my opinion, whereby we push up slightly towards $1500 only to fail and push back downwards. At this point, the wedge could continue to hold, or we could break down in a scenario similar to the first.


Anyway, that's my gold set for the week, and in terms of time frame I would expect this to occur by the end of the week - the wedge really is narrowing aggressively by this point.