How High Can Gold Go?

The limit to buy gold at $1,250 was triggered on the May 19th, only to see the trade go against us before we were saved by the bell of buyers that flocked in at $1,200 at the end of last month.

Price did not close below $1,200 hence we did not cut our losses, rather seize another opportunity to long silver at around $16 since the two metals have positive correlation.

One stop strategy we always use is called Stop Close Only, or Stop on Close, to avoid being stopped during intraday trading only to find price move in our favor. Retail traders can use this strategy by having a price alert set to alarm when price reaches the specified level. If price closes below (for buy) or above (for sell) the specified stop, then the losses must be cut to avoid further losses.

XAU/USD Charts

Since our last article on May 18th, the Fed's rate hike rhetoric sent gold down, and the FOMC minutes revealed that Feds were not as dovish as markets had expected - which exacerbated the fall - though the dismal NFP earlier this month sent the bulls back in charge.

The recent FOMC meeting left rates as expected and saw bulls advance further to stage another attack at the $1,300 level.

Currently hovering above $1,300, we believe bulls are forming a pennant to push price higher in anticipation of Britain leaving the European Union in the upcoming referendum. IPSOS-Mori polls showed 53% would vote to leave the EU in the latest poll.

European leaders were also reported to have prepared a contingency plan if the Leave campaign won. After all, the UK is the second largest economy in the economic block after Germany.

Onto the gold futures, recent CoT reports showed that open interest is building up and large speculators’ net longs increased, though less than what we had seen since our last article (228,619 vs 264,898 contracts).

Gold Futures Chart

A further look at the US Dollar Index futures showed dying interest, though as of June 7th CoT reports showed that market participants are net short in all currencies against the dollar except for yen, kiwi and loonie.

Dollar Index Futures Chart

Halal Traders have closed partially to book profits for the month and updated our stop to $1,270 for a risk-free trade.