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Is Gold At A Tipping Point? 2 Scenarios For Traders Now

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By Kira Brecht

(Kitco News) – As traders return to work Monday morning, gold prices have already edged off their overnight lows. Gold buyers are nibbling as the yellow metal drops to test the lower boundary of its two-month trading range.

The news: Fed Chair Janet Yellen’s speech last week triggered renewed speculation that the central bank may raise rates sooner rather than later.

Is it another case of the boy who cried wolf? The renewed hoopla over September being a “live” Fed meeting may well be another case of the boy who cried wolf.

If the Fed is going to raise rates in September, somebody forget to tell the US 10-year note: the yield remains in the same sleepy range between 1.63% and 1.45% that have confined the market since mid-July. The CME’s Fed Watch tool reveals that Fed fund futures are pricing in a 30% probability at the September 21 Federal Open Market Committee meeting.

Even if the Fed does pull the trigger on a .25 basis point rate hike, the official interest rate remains well below historical norms. The federal funds rate stands a 0.25-0.50%. A small blip higher of 0.25% would not mean much in real economic terms, and it would still remain below 1.00%.

Technically Speaking
Gold buyers are supporting the range bottom. Let’s take a look at Figure 1 below. Since late June, Comex December gold futures have shifted into a neutral sideways range bordered by support at $1.314.80 and resistance at $1.384.40.

A potential triangle formation has been developing on the daily chart (seen in red), but gold prices have marginally breached the lower trend line. Significantly, the gold contract, has held above the $1,314.80 range bottom.

Did Janet Trigger Another Buy Spot In Gold?
The burden remains on the bulls to continue to defend retreats to the lower boundary of the two-month range.

Scenario A: If support at the range bottom at $1,314.80 cracks –this would be a bearish short-term signal. The 100-day moving average, shown in blue, stands as next support and a bearish target on a range breakdown at $1,301.70.

Scenario B: If support at the range bottom at $1,314.80 holds firm –this would be a bullish short-term signal. The 20-day moving average, shown in black, stands as a nearby bullish target at $1,346.60.

Gold bulls face some headwinds this week with the strength in the U.S. dollar index and a spate of key U.S. economic reports. Traders will look to Thursday’s ISM release and Friday’s employment report as potential indicators on whether the Fed will hike at its September meeting.

Trading plan: Watch the price chart. Define your trading levels, your price objectives and your stop-loss points. Plan your trade and trade your plan. Gold trade could become volatile this week.

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