Gold Trading in a Falling Channel

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Gold Trading in a Falling Channel

Gold has been bearish since retreating from 1342. It has been a choppy type of bearish trend. Price has whipped above the 200-, 100-, and 50-period simple moving averages (SMAs) in the 4H chart several times, though currently, price is trading below all of them. The SMAs are also sloping down and in bearish alignment. We can also say that price has been trading down in a falling channel.

Gold (XAU/USD) 4H Chart 9/7
gold 9/7 4h chart

(click to enlarge)

Last week, gold price tagged 1257.15 with a bullish divergence. The reaction so far has been at least a near-term consolidation A break above 1280 would represent the status-quo, choppy decline, in which case we should expect sellers in the 1290-1300 area.

If price holds below 1277 however, the bearish mode might be shifting into a sharper form, which has the 1240 support pivot as the first target. Below 1240, the 2014-low around 1180.

Gold (XAU/USD) Daily Chart 9/7
gold daily chart 9/7

(click to enlarge)

In the daily chart you can see that this bearish scenario is supported by the fact that gold price broke below a triangle support. If will take a break above 1300 to remove the bearish outlook. A break above 1300 would put price back above the cluster of 200-, 100-, and 50-day SMAs.

In the bullish scenario, price will be be challenged be a 2014-falling trendline probably around 1315-1320. Then the 1345 resistance pivot, and 2014-high, will be reinforced by another falling trendline going back to Sept. 2013. A break above 1350 would introduce a bullish outlook in the medium-term, and would consider the 2014-price action as a price bottom.

Going back to the bearish scenario, a break below 1240 opens up 1180. Then if price falls below 1275, 2014 price action can be considered a consolidation within a bearish trend because price in 2012 to mid-2013 was bearish. So, even though the next support below 1275 is 1156.70 (support pivot from July 2010), there could be further downside risk toward 1044.10, the 2010-low.

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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.