Technical Assessment of Gold As We Approach Year’s End

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Technical Assessment of Gold As We Approach Year's End

A Bearish Year
Gold has been bearish in 2014. It has been swept by strong USD and weak commodity price currents. However we have seen some resilience in November, and now in December. Let’s exam the monthly, daily, and 4H charts to make a technical assessment of gold as we approach the end of the year.

Gold (XAU/USD) Monthly Chart
gold monthly
(click to enlarge)

Bullish Reversal Scenario: A look at the monthly gold chart shows that price had come to the 100-month simple moving average (SMA). The RSI is showing a 3-pt divergence. Also, we are potentially going to have a bullish reversal candlestick combination if gold rounds out the year around above 1180, so that the body is at least 1/2 of the candle. If gold closes the year above 1260, we would have a very strong reversal signal from an engulfing candle.

The bullish scenario is premature, so we will have to still monitor the short-term price action.

Gold (XAU/USD) 4H Chart 12/15
gold 4h chart 1215
(click to enlarge)

Bullish; Bearish Correction: The 4H chart shows a market that has turned bullish at least in the short-term, as price is above the 200-, 100-, and 50-period SMAs, and price action has made last one higher high and higher low. Now, that does not completely describe a bullish trend. Another upswing can help strengthen the case, especially if it breaks above 1240, a falling trendline seen in the daily chart below.

Staying on the 4H chart, we can see that price is starting the week with a bearish push. Although this broke a rising speedline, there is support in the 1200-1210 area, especially when the 4H RSI approaches 40. If there is indeed support here, and price comes back above 1225 to make new highs on the week and break the flag pattern, we might be seeing a bullish continuation signal.

Gold (XAU/USD) Daily Chart 12/15
gold daily chart 12/15
(click to enlarge)

Last line of Defense: The daily chart shows gold testing a critical falling trendline from July’s high of 1345. Price has so far retreated from this line and the 100-day SMA. The daily RSI was also held below 60, showing that there is still bearish bias. This reaffirms the significance of the 1240 level, a break above which might be needed to convince the market that gold is indeed turning bullish.

Final Words:
In conclusion, gold is at the crossroad, looking like it is turning bullish. We can keep this bias in the short-term, unless price falls back below 1200, which breaks some short-term support and puts price back below the 50-day SMA. Give it some elbow space. If it can survive the year and hold above 1800, give it a chance to pop back up above 1200, at which point the bullish outlook would still be alive.

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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.