While Gold might have taken a hit over the past three weeks on rising bets of a US rate hike, the markets are clearly forgetting the fact that in a scenario of rising inflation, Gold prices tend to gain. However, currently the markets are still not entirely sure of a Fed rate hike lift off this December, but with increasing probability of a December action from the Fed, Gold prices are showing a bottoming pattern.
The 15 point box size Renko chart for Gold reflects this view. In the medium term outlook, Gold prices are likely to stage a strong rebound.
From a technical perspective, prices are trading inside a falling price channel with major support/resistance established at 1204 through 1189 levels. Within the falling price channel, prices are consolidating into a descending triangle pattern which could see an upside move on a break out off the consolidation.
Of interest is the price level near 1114 – 1115 level, which if breaks could signal a potential move (however, at the risk of a fake break out). To the downside, prices are close to forming a double bottom pattern near 1084/1085 level. Assuming that prices do touch down to this level at 1084/1085, the double bottom pattern could signal a rise which points to a longer term rally to 1264/1265 if the double bottom pattern does indeed validate to the upside.
The upside bias is confirmed by the Stochastics oscillator as well, which when comparing the lows of 1204.94 and 1084.94, we see a clear bullish divergence in play. As long as the Stochastics oscillator does not break below the 20 level to the downside, a reversal there could signal a move to the upside. Monitoring the level of 1069/1070 will be of interest here as a potential reversal at 1084 could make this (1069/1070) an ideal place to have the stop loss orders set up.
In terms of risk/reward the set up offers a 1:3 risk/reward ratio with long orders from 1100, targeting 1200 and stops at 1070. Of course, this trade will be subject to how the Stochastics oscillator will behave as we look for a higher low being formed while a double bottom is formed near 1088.