Gold Trading Strategy: Another Dip, Another Bull

Another Dip, Another Bull

Recent weakness in gold (XAU/USD) is a wonderful gift for dip-buyers. Our financial model for the yellow metal suggests  the corrective weakness may be capitalized on for initiating long trades in the market.

Please click on the chart to enlarge:

Gold Trading Strategy 10/05/14

Gold Trading Strategy 10/05/14

The weekly chart is painting the right-hand shoulder of a classic reversed Head-And-Shoulders (H&S), which is what we refer to as the dip. The hourly bullish engulfing support our entry to gold in the spot market, reassuring the expected reversal.

Gold possesses safe-haven qualities as we’ve witnessed with the Russian-Ukraine crisis.  Mario Draghi’s dovish statements in the recent European Central Bank (ECB) press conference, which strengthened the US Dollar against a number of currencies are likely to be countered by dovish statements from Fed. Safe-haven or currency wars, gold is our favourite financial instrument for the medium term.

The weekly support is noted at 1,267. However, we will not layer our protective stop order below this area due to the excessive volatility in the precious metal. Instead, we would layer our protective stop loss order below 1,249 in order to maintain the trade for the medium-term. Our target for the commodity will be below the neckline at 1,390.  If our target is met we will revise our financial model and determine how we would re-enter the market.

Gold Trade Details

Entry: Long at market price (opening of the markets, current price:
1,288.50).
Take profit: 1,390
Protective stop loss order: 1,249

Estimated duration: 60 days
Risk Ratio (RR): 1 : 2.5 (approx.)

12/05/14 UPDATE: Gold is trading at 1,300.90 at the time of this writing. We close 15% of the long trade from 1,288.50.

20/05/14 UPDATE: Gold (XAU/USD)is trading at 1,292.70 at the time of this writing. Similar to BTC/USD trade, we liquidate 40% of the long trade at market price.

[lastupdated format=”F j, Y \a\t H:i T”]