Last week, we saw gold fall sharply from 1345.28 to 1292.20, after which it came back to about 1325. Price action evolved into a triangle.
(click to enlarge)
Price action during the 7/22 session pushed below the triangle and is signalling bearish continuation in the short-term. Here are some observations from the 4H chart:
1) The RSI has tagged 30, and is holding below 60, which is a sign that the bearish momentum is maintained.
2) Price action essentially tested the 50-, and 100-period SMAs in the 4H chart as resistance. Being able to stay south of these SMAs suggest bearish development. With that in mind, we still see price holding north of the 200-period SMA, which suggests a lack of bearish commitment in the short-term. A break and hold below 1300 should clear below this support factor and add more weight to the case of another bearish attempt.
3) Also, take a look at today’s reaction to US data – softer inflation data, followed by stronger-than-expected existing home sales figure. The 4H candle was a indecisive candle and provided a US-session range roughly between 1315 and 1302. Again, clearing below the 1300 handle will resolve the indecision and bring the bearish outlook in play.
4) However, if price pushes above 1315, we might have to shelve this bearish outlook.
Looking at the daily chart, we can see that a swing projection targets the 1270-1275 area, which is also a support/resistance pivot going back to January.
(click to enlarge)
Note that this decline is within the context of a triangle that appears to be forming in 2014. In fact if the bearish attempt pushes price toward the 1260 area, look for buyers, especially if the daily RSI tags 30.
Final words: In the short-term gold does look bearish within 2014’s consolidation mode. However, if the current bearish attempt fails and price does push above 1315, we need to consider the possibility that gold is then building a bullish case, as price would then be holding above the 200-, 100-, 50- day SMAs.
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