Trade Recommendation: Gold/AUD

The Gold/Australian Dollar (XAU/AUD) pair began to lose its bullish steam in October 2012 when it generated a lower high of 1,755.380. This was a clear signal to market participants that the bull run was over. Those who saw the writing on the wall dumped positions to protect their capital. As a result, the pair posted seven consecutive red candles on the monthly chart.

XAU/AUD eventually found the bottom at 1,278.206 in June 2013. In under a year, Gold lost over 27% of its value against the Australian Dollar.

The pair then began to establish a new base as it range traded between 1,300 – 1,500. The sideways consolidation ended in January 2015 when the pair rallied to 1,653.700. Even though bears repelled the advance, bulls responded by creating a higher low setup at 1,431.908 in December 2015.

The pair has been showing bullish signals since. This could be your chance to buy the next higher low.

Technical analysis show that the Gold/Australian Dollar pair is creating huge cup and handle pattern on the monthly chart. The pattern will be triggered once it takes out resistance of 1,800. While the pair is positioning for a breakout, we expect a pullback in the near term as the 21-day moving average is still detached from the monthly candle. Ideally, this slight dip should prepare the market for a more sustainable breakout.

The strategy is to buy the dip as close to 1,600 as possible. If bulls stay above this level, they will gather the momentum required to break out of the formation and ascend to our target of 2,250.

The process may take more than six months.

Monthly Chart of Gold/Australian Dollar on OANDA

As of this writing, the Gold/Australian Dollar pair (XAU/AUD) is trading at 1,705.759 on OANDA.

Summary of Strategy

Buy: As close to 1,600 as possible.

Target: 2,250

Stop: 1,525

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.