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2018 has been a remarkable year for Gold, not due to major moves or wild swings but largely because of their absence. The precious metal is typically one of the more volatile markets compared to FX and indices, but the year so far has been an exception to the rule. This isn’t to say that there’s been limited trading opportunities as any range-bound strategy would have made several good trades as price oscillated between a floor around 1304 and highs in the 1355-1365 region.
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Prices made what looked like a decisive break lower last month, but there’s been a lack of follow through so far, with the market reverting to a narrow trading range rather than beginning to trend. Still, unless there’s a clean move back above 1304 then we remain in breakout territory with the gap higher from last December at 1273.91 a first possible target and the same month’s low of 1236.40 a more ambitious one. A symmetrical move would target 1242 – taken as the size of the previous range (1366 – 1304 = 62) projected below the low of the range (1304 – 62 = 1242).
In fact, from New Years Day until the second week of May the entire year’s trade was confined to this range (1304-1365) which represents a move of less than 5% from peak to trough. At the time of writing with Gold trading at 1295 last, the market has moved lower by just 0.6% from the level at which it ended last year. To put this in some historical perspective the last 15 years for Gold have only seen one annual change less than 5% with the average year-on-year move being 10.36%!
Taking a very long term view of the market there could be a major inverse head and shoulders formation developing with the head at the 2015 low of 1046. The neckline in this possible setup is a falling trendline going back to 2013 and a clean break above it would trigger the entry. The trendline at present coincides with the recent highs around 1365 and a break above there would target a large move ($300+) to the upside. This may seem a highly ambitious target but it is entirely possible especially if there is a major global fundamental shock; and there is no shortage of contenders that could deliver this in the not too distant future – EG North Korean/Iranian nuclear situation, Italian/Spanish political turmoil, Trump-Russia collusion, Brexit etc
Contracts for Difference (“CFDs”) are leveraged products and carry a significant risk of loss to your capital, as prices may move rapidly against you and you may be required to make further payments to keep any trades open. These products are not suitable for all clients, therefore please ensure you fully understand the risks and seek independent advice
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David Cheetham is the Chief Market Analyst at XTB UK who began his career trading Brent futures on a prop desk. David took the job after completing an MSc in Banking and Finance at Newcastle University. After initially trading Brent futures, he quickly expanded to cover WTI and some fixed income markets. After two years he branched out and started trading for himself, covering a wider range of assets including indices and FX whilst maintaining his core focus on Oil. David actively trades most asset classes. Whilst his approach is predominantly technical, he is well aware of fundamental drivers impacting markets and uses a combination of both when selecting his trades.