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A daily gold chart looks much like any Dollar-based pair – stuck in a range:
Between $1358 and $1365 we see supply coming into the market, and down at $1300 – $1315 we see demand driving prices up.
We could spend some time going into the fundamentals of “why”, but really, what does it matter? I would rather have a trading plan.
Question 1: Do I need to know which direction price is going to break to trade this instrument?
Question 2: Can I trade it within its current range?
Let’s start with question 2 first. The short answer is, yes, of course, you can. Trade the bounces by buying up near the bottom and selling near the top. However, between $1322 and $1336 we see minor support and resistance coming into play, and you need to watch out here because as this consolidation gets scrappier, that minor zone is going to snag price up more and more. Trading inside these ranges is not too much fun.
Which brings us to question 1, rephrased as follows “how can I trade gold when it breaks out of this range?
Here is how:
You will see the structure I have drawn in green better on a weekly chart, but this monthly chart opens up the targets.
Bullish breakout
Price has been hugging resistance at $1360 for four months now, squeezed into that zone as buyers step in higher and higher up (the upward sloping trendline). A breakout and retest opens up $1550 and $1770.
Bearish breakout
I think if price were to manage a weekly close below the lower trendline I have drawn in; we would see a move lower to $1150 and even potentially lower to $1050. If market sentiment towards the USD turns bullish, GOLD will struggle.
In summary, you cannot trade the breakout yet because it has not happened. You also don’t have to guess which way it is going to break.
