In our most recent post of spread trading strategies for gold we wrote that the $1215 level for gold was still key to the upside and failure for the market to clear that level would lead to a test of strong support at $1185. Last Friday’s close at $1185.8 was a new low close for 9 weeks, so without doubt the short term trend was moving down.
Considering the short term weakness in this market, a failure of support at $1185 should have led to a move down to the next support area at $1168, but having moved lower initially on Monday to $1176.9 the lows were rejected and the market climbed a bit but still closed below prior support at $1181.9, giving a new low close for this contract and a close below prior support.
Yesterday the market made another push lower but once again the market rejected the lows and pushed higher again. This formed a piercing pattern on the daily charts, which is a bullish reversal pattern and the market closed back above $1185 at $1191.7. At the time of writing this morning, the market is fairly quiet, hovering just below the $1190 level.
When considering which spread trading strategies to use on gold, there are a few things to consider, firstly, without a doubt the long term trend is still up and therefore the odds favour higher prices. It will take a large move to the downside to change that long term trend to down.
Also to be considered is that we have 2 good support levels in the market at $1168 and also at $1157. We also have a third good support level at $1125 and the obvious $1100 level as well. Therefore, to get a decent move to the downside would require bulldozing through several strong support levels.
In the more immediate term, the last 2 days candle patterns have reasonably long lower shadows and this indicates rejection of lower levels as well as yesterday’s piercing pattern, which is also bullish short term. I’m not a buyer at these levels as that would be counter to the short term trend and will be waiting for more strength before entering longs, but will not be entering short any time soon.