Reversal? Not so Fast: Last week gold signaled a possible reversal with a double bottom. In the beginning of the week, we saw some validation of that double bottom, but as noted in the previous update on gold, the 4H chart still held bearish bias. As we get into the middle of the week, gold retreated but is holding above 1200. With price still holding below the 200-, 100-, and 50-period SMAs and the RSI holding below 60, we should not be so quick to anticipate a bullish reversal.
Range Forming: The decline today invalidated the double bottom attempt last week, but if price can hold above 1200, gold can still be in a rounded bottom formation. But instead of looking at the double bottom, we should now turn our attention to the new range roughly between 1190 and 1225.
Bullish Scenario: At this point, if price can push above 1225, it will also clear above the falling trendline from January’s and 2015’s high of 1307. With the range being around 35 units. A break above 1225 can be projected towards 1260. The 4H chart shows that indeed, there is a previous support area between 1250 and 1260. A break above this area can then expose the 1307 high with risk of extending higher in the short-term. There will be resistance in the 1340 area, which is near the highs from July 2014.
At the Crossroads: Looking at the daily chart, we can see that gold is trading at the crossroad. On one hand, there is a bullish bias as price holds above a rising trendline and the daily RSI holds above 40, but barely.
On the other hand, price is back below the 200-, 100-, and 50-day SMAs, and we know that the prevailing trend since 2011 as been bearish.
Therefore, the breakout from the current range will be a key indication of direction for the medium-term. We discussed the bullish breakout. The bearish one, below 1190 will open up first the 1170 support pivot, then the 1130-1140 lows, with risk of continuing a secular downtrend.
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