Gold Sees Expansion, Approaches First Target

Gold futures sell off sharply after expansion from the narrow two-month range. But is the sell-off over?

Expansion from 2-Month Range

In the May 19 edition of the Opening Print (Watch for Expansion in Gold) I wrote: “Bears will look to fade a retest between 1305 and 1307, and will want to press sell stops below 1287. The bears have yet to get price to gain acceptance below 1280, so this is the real level to watch for a definitive breakdown ahead. Below 1268.50 has downside expansion targets at 1237.10 and 1205.60.”

Gold [CBT:ZGQ14] finally saw the range expansion we were looking for two weeks ago when I wrote the entry above. Not only that, the first price to go offered before the sell-off was 1304.90, which is just 1 tick below the 1305 to 1307 sell zone we offered in our analysis. In all, the move has been worth over 60 points, but more could be seen.

Watch 1237.50

The expansion targets I offered two weeks ago for the bear scenario were 1237.50 and 1206.30 (adjusted for the Aug 2014 contract), which are the 50% and 100% expansion targets from the April range. Gold hit 1240.90 during Monday’s session, and is within striking distance of reaching the first expansion target at 1237.50. Overall, the expectation is for a continuation toward the 100% expansion target at 1206.30.

However, profit-taking typically takes place at expansion targets, so watch 1237.50 to 1240 for a potential bounce, as responsive buyers will look to defend this zone in an attempt to return price back to the bottom of the April price range at 1268.50. Should price rally into the 1268.50 to 1280 zone, look for signs of absorption, as this area offers another selling opportunity with downside targets at 1256.50, 1237.50, and 1206.30.

Failure to hold 1237.50 in the near term suggests further weakness into 1206.30, with ADR targets at 1224.30 and 1215.60.

Cheers!

Frank Ochoa
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