Gold Pulls Back to Broken Triangle Support

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Gold Pulls Back to Broken Triangle Support

Gold has been bearish since July, falling from 1345.28 to about 1130 last week before a sharp rebound.

Gold (XAU/USD) Daily Chart 11/10
gold11092014day

(click to enlarge)

Sharp rebound: The daily chart shows gold rallying sharply from 1130 to almost 1180. Friday’s daily candle is an outside bar, and thus signals at least some short-term consolidation ahead this week. The daily RSI was also oversold, so a correction is not a surprise.

Prevailing Downtrend: However, we should be mindful that the prevailing trend is bearish, and that gold just recently broke into new lows on the year as well as below the 2013-2014 consolidation support.

Breakout in Progress: When we look at the weekly chart, we can see the break below the 2013-2014 structure, which is somewhat of a descending triangle. The breakout might not be as convincing here in the weekly chart. However, if we see sellers in the 1180-1200 area, the breakout is still valid, and pressure should remain towards the 1130 low, with risk of falling further to at least the 1100 handle in the short-term.

Gold (XAU/USD) Weekly Chart 11/10
gold11092014week

(click to enlarge)

1250 Resistance: Now, going back to the daily chart, if price extends above 1200, and the daily RSI pushes above 60, we might have to shelve the bearish outlook for a bit of consolidation. This consolidation however should have limited bullish outlook, to 1250, common support/resistance pivot area. A break above 1250 might introduce a bullish outlook, but more clues of support above 1180 will be needed for this scenario to develop.

With the momentum bearish, but not oversold in the weekly chart, I think there is a higher chance that price will fall toward 1100 instead of return to 1250. There is also the fact that the USD has been gaining across the board, and unless the market puts a cap on USD-strength, XAU/USD will continue to look bearish with the recent breakout into multi-year lows.

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