Britain's decision to quit the European Union is painting financial markets with a decisive risk-off colour. But safe-haven assets like gold are getting a boost and barring any dramatic reversal of this initial reaction to the referendum, gold may now be ready for its next leg higher.
On June 16
I took full profits in my long-side trade in the popular GLD etf. After some back and forth this morning, gold is spiking higher and as we will see on the below charts, giving us initial signals that a renewed breakout attempt may be at hand.
As a side note, while my go-to trading vehicle for gold is the GLD etf (GLD:arcx) the below charts reflect the gold futures price because the GLD has as of this writing not yet begun trading for the day.
On the multi-year chart we see that gold as of this morning is attempting another breakout past diagonal resistance measured from the 2011 highs. There's no reason to overcomplicate matters, this is the line in the sand for gold in my opinion, through the lens of this timeframe.
Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more
On the daily chart we see that after gold became overbought in mid June (where I took profits in the aforementioned trade), it pulled back and with today's rally so far left another higher low behind on the chart – see circle on chart. Clearly gold so far today is now giving a breakout of the multi-month range a good shot, the question is where it can land on a daily and weekly closing basis.
Management and risk description
Sometimes big toggle points in markets such as the UK referendum vote can first see a fake reaction before a truer read in markets comes to fruition. As such the risk to this trade is that this initially rally in gold quickly fades and leaves a big bearish reversal behind on the charts.
Entry: Buy the GLD etf upon a daily close above the $124 mark
Time horizon: 2–4 weeks
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more