Gold is Confirming a Price Bottom and Trading in a Rising Channel

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Gold is Confirming a Price Bottom and Trading in a Rising Channel

Gold prices have stabilized in November after falling from the July-high of 1345 to a fresh low on the year at 1130. When we look at the 4H chart, we can see that since rebounding from 1130, gold has been trading in a rising channel.

Gold (XAU/USD) 4H chart 11/21
gold 4h chart 11/21
(click to enlarge)

When we look at the technical development in the 4H chart, we can also say that gold is at the crossroad.

First of all, it has formed a price bottom, where the 1175 level was a key resistance that was broken. After forming the base, gold rallied to 1204.65 where it respected the 200-period simple moving average and retreated.

Price Bottom and Rising Channel: On the retreat gold showed respect to the 100-, and 50-period SMA, and more importantly the 1175-1180 resistance area, which has now turned into support.  Also note that the 4H RSI has tagged 70, and is now holding above 40, which shows maintenance of November’s bullish momentum. This confirms a price bottom. We can also see a rising channel forming.

Therefore on one hand gold is displaying a bullish progression with the rising channel and price bottom confirmation, while on the other hand, it is not bullish in the 4H chart because it is still holding below the 200-period SMA. It is also still bearish in the daily chart.

Gold Daily Chart 11/21
gold 11/21 daily chart
(click to enlarge)

Bearish Mode: The 200-, 100-, and 50-day SMAs are sloping down and are in bearish alignment. Price is under the SMAs, and the RSI has tagged below 30 and has remained below 60, which shows bearish momentum.

Flag Pattern: The rising channel that we observed in the 4H chart looks more like a flag pattern, so we should limit the bullish outlook on gold in the short-term.

A key resistance resides around the 1220 area, which contains a support/resistance pivot, and is reinforced by a falling trendline from August’s highs around 1320. If price stalls around 1220, and the daily RSI stalls around 60, we should expect a bearish attempt, at least to test that key pivot around 1175 again. A break below 1170 might revive the bearish outlook.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.