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Day five: our potential gold trade

Gold moved up yesterday on a massive position adjustment. 

bg_gold_1266775

The market clearly went into the Fed meeting expecting an acknowledgment of recent inflation forces and didn’t get them. In fact, Yellen said the recent pick-up in inflation was just ‘noise’.

The employee cost index (ECI), or the level of US employee wage growth has now become perhaps the most important chart for traders who trade around Fed expectations and a move higher would be significant for Fed policy and should cause yields and the USD to rise and gold to fall.

Still, while we saw a fundamental position adjustment, good technical buying has been seen on the break of the 55-, 100- and 200-day moving averages, while the April downtrend has also been broken. The 23.6% retracement of the recent rally could be a good level to look at longs at $1302.5, given the 9-day RSI is overbought.

The daily chart may suggest buying dips given the short-term extended nature of price, however the weekly chart seems more interesting to me. A close tonight above the downtrend would be positive and put the double bottom neckline in play (at $1433). A break of $1433 over the medium term would target $1684 (based on the double bottom pattern). Fundamentally this seems a stretch, but this a pure technical view.

Of course the gold bears would want to see this level hold.

Spot Gold chart

Click on chart to enlarge.

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