Gold Breaks a Rising Trendline While Forming a Double Top

Gold Breaks a Rising Trendline While Forming a Double Top

Rallying From the 2-year Low:
Gold price has been bullish in October since making a low on the month at 1183, not far from the 2013-2014 lows around 1180. Let’s just say it bounced off the 2-year consolidation support. This week, price action started off bullish, bouncing off the October’s rising¬†trendline, staying above the 200-, 100-, and 50-hour simple moving averages (SMAs), and holding the 1H RSI above 40.

Gold (XAU/USD) 1H Chart 10/15
gold 1h chart 10/15

(click to enlarge)

Broken Trendline and a Double Top:
The above mentioned bullish bias and momentum has shifted by the start of the Wednesday (10/15) session. The 1H chart shows price failing to clear the 10/13 session high of 1237.44, despite cracking it briefly. This created a double top possibility. Then, as the 10/14 session came to a close, price fell below the trendline and is now testing the 1225 pivot. (We talked about this level in the previous post on gold). Note that price has dropped below the 100-, and 50-hour SMA and the 1H RSI has fallen below 30, showing bearish momentum.

As noted in a previous post, a break below 1225 will likely shift the trend back down at least for the short-term. In the 1H chart, we can see some common support just below 1205. In the 4H chart, we can see this support extending back to late September.

Gold (XAU/USD) 4H Chart 10/14
gold 4h chart 10/14

(click to enlarge)

Key Support:
Now let’s say price completes and respects the double top we saw¬†in the 1H chart. If price extends to 1205-1210 area, we should expect to see some support especially if the 4H RSI is around 40. The ability to bounce up from this area, given some elbow space to say 1200, would suggest continuation of the current consolidation/bullish correction mode.

A break below that level shifts the likelihood that gold has revived its prevailing downtrend. In this scenario, remember that silver has been in a similar situation and has broken the 2013-2014 lows. Will gold follow suit?

Silver (XAG/USD) Weekly Chart
silver weekly chart 10/14

(click to enlarge)

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