Let’s See if Gold (XAU/USD) Can Stay Above 1200 This Time

Let's See if Gold (XAU/USD) Can Stay Above 1200 This Time

In the previous update on gold, we noted that a false break downwards might translate into a bullish breakout.

Gold – False Break Down Suggests Pending Bullish Breakout

Gold (XAU/USD) 4H Chart 5/15
gold 4h chart 5/15
(click to enlarge)

As we get started with the 5/15 (Friday) session, we are indeed seeing a bullish break. Another interpretation is that instead of a false breakdown, gold was in a falling channel, and the price action during the 5/14 session broke above this channel. Either way, it is a bullish signal, especially as it broke the 1224 April high.

As we look for a bullish scenario, we should make sure 2 things don’t happen.
1) Price does not fall back below 1200.
2) The 4H RSI holds above 40 on a subsequent pullback.

If price falls below 1200 and the RSI below 40, we are likely not in a bullish breakout, but rather still in a choppy consolidation, which would have a bearish bias based on the prevailing trend shown in the daily chart.

Gold (XAU/USD) Daily Chart 5/15
gold daily chart 5/15
(click to enlarge)

The daily chart shows that the prevailing trend is still bearish, even though we had a significant pullback at the end of 2014 through January of 2015. Then, we had a dip that pushed price back below the 200-, 100-, and 50-day SMAs. Since then, the RSI has tagged below 30 and held below 60. These are all signs that bears are still in charge.

However, it looks like bulls are in charge of the short-term mode. If price does hold above 1200 and price clears the 1224 resistance pivot, 1237/1238 will be the first resistance in play. Above that, the 1254/1255 support/resistance area would be in sight.

The other scenario, one where gold falls below 1200, would keep pressure back on the 1170-1178 area. Below 1170, the 1143 and 1130 lows would be in sight.

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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.