Gold is Starting the Month on a Good Note – Bullish Scenario

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Gold is Starting the Month on a Good Note - Bullish Scenario

Gold has been sliding since late January, but found a potential price bottom last week. This week, we are looking at possible reversal off of that price bottom, so let’s assess the technical developments and assess the bullish scenario for the coming week(s).

Gold (XAU/USD) 1H Chart 3/2
gold 1H chart 3/2
(click to enlarge)

Bullish Reversal Clues:

Since late January, price has been sliding from a high near 1307 to a low just above 1190 last week. Look at the 1H chart above. See the double bottom?

The DB started the whole reversal process. Note that since the bottom, price has crossed over the 200-, 100-, and 50-hour SMAs, and has been respecting the cluster as support. This is a strong bullish signal. Also, the SMAs are starting to slope upwards again and are getting into bullish alignment.

The RSI has tagged above 70 and has so far stayed above 40 for the most part, reflecting development of bullish momentum. To start the week and a new month, price bounced off the 50-hour SMA, and looks poised to take out last week’s high near 1220.

The ability to hold above 1200 after the double bottom last week and the continuing bullish action suggests upside risk back towards the 1300 handle. However, when we look at the 4H chart, we can see why some traders might not be completely convinced yet.

Gold (XAU/USD) Daily Chart 3/2
gold 4h chart 3/2

(click to enlarge)

Another Technical Barrier

We do see a possible price bottom forming in the daily chart as well. Price is moving above the 50-, and 100-day SMAs, while the RSI is crossing above 60. These are all signs that the bearish bias is eroding. However, in order to bring in a wave of bullish bias, price might need to break above 1230, and clear the falling trendline from that January high. This would open up the 1250 handle as well as the 1300-1315 highs.

If price finds resistance around 1230, when the RSI is overbought for example, we should monitor to see if price can stay above 1210. A bullish outlook might still be valid if price can simply stay above 1200, but a hold above 1210 would be a more visual clue for the bullish outlook, and make the 1230 level more vulnerable.

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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.