The Gold/Chinese Yuan pair (XAU/CNY) started to flash bearish signals in November 2011 when it generated a lower high of 11,450. Bulls tried to keep the uptrend alive by staying above the 10,000 support but the market broke it in February 2013. This triggered the head and shoulders reversal pattern on the weekly chart.
The bearish price action started a selling frenzy that saw the pair plummet to as low as 6,694 in July 2015. At this level, the market was already showing signs of reversal. A long bullish divergence could be spotted on the weekly chart. In addition, XAU/CNY was able to hold the 6,700 support after a successful retest in November 2015.
Bottom fishers entered the market as they saw the writings on the wall. The buying activity sparked a rally to 9,199 in July 2016. The market has been consolidating since but it appears that a breakout is on the horizon.
Technical analysis reveals that the Gold/Chinese Yuan pair is poised to take out resistance of 8,520. Breakout at this price point would trigger two bullish patterns: an inverse head and shoulders pattern and a symmetrical triangle pattern. In addition, it would send a loud signal that the long wave 2 is finally over. This would attract trend followers and breakout traders who would help propel the market to our target.
The strategy is to buy the breakout of 8,520. Once bulls take out this level, they may ignite a powerful wave 3 that will catapult XAU/CNY to our target of 10,000.
The process may take six months.
Weekly Chart of Gold/Chinese Yuan
As of this writing, the Gold/Chinese Yuan pair is trading at 8,352.
Summary of Strategy
Buy: Buy on breakout at 8,520.
Stop: 8,250 after the breakout.
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