Gold is Still in a Bear’s Market Under 1200

Gold is Still in a Bear's Market Under 1200

Gold has been consolidating. It has been a choppy and tricky consolidation since April as we can see in the daily chart, where we saw higher highs and higher lows.

Gold (XAU/USD) Daily Chart 5/27
gold daily chart 5/27
(click to enlarge)

Looking at price action in the middle of May, we saw a bullish push that broke above the 200-day SMA and was pushing the RSI above 60. These were early signs of a bullish market. However, price quickly retreated and the RSI held mostly under 60, showing maintenance of the prevailing bearish momentum from January through mid-March. Essentially as price slid under 1200, the nascent bullish outlook shifted back to a neutral-bearish mode.

The false break to the upside actually confirms that this is still a bear’s market thus putting the 1142.67 low on the year and the 1130 low of 2014 in sight.

1200 was a key support when gold showed a bullish breakout. Now, 1200 will be a key resistance for the bearish scenario.

Gold (XAU/USD) 4H Chart 5/27
gold daily chart 5/27
(click to enlarge)

The 4H chart shows gold retreating since it claimed 1230. There was some consolidation just above 1200, but price remained below 1215. Now, look closely at the structure of that consolidation. It should remind you of the expanded flat seen in the daily chart. While we shouldn’t read too much into the similarity, we should understand that there is a fractal nature to market behavior and if we see a few expanded flats broken to the downside in the short-term, we should give preference to a bearish break of the expanded flat in the medium-term.

The bearish trend has a couple of things going for it. 
1) The prevailing trend since 2011 has been bearish.
2) The USD is in a bout of strength due to an optimistic FOMC and the market’s expectation of a rate hike in September.

The first point is marked in history, but the second point is dynamic – the FOMC can change its outlook. The GDP data this Friday will be a strong clue to whether the FOMC can stay optimistic. If we see gold come back above 1200 after Friday, then, we have to shelve the bearish continuation scenario, and await further consolidation and maybe some bullish outlook in the short-term.

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