Previous: Gold Bounces Off 200 Period Simple Moving Average…(9/26)
Gold has lost its luster, but has been in a correction since hitting 1532 up to 1677.90. Since the correction swing in late September, price action has been contained within these two pivots. While the resistance held again in the European session at 1677.90, the support has been rising, forming an ascending triangle. From this consolidation pattern, we have 2 breakout signals we can look for.
Upside break: The break above 1677.90 is also a break above the 50% retracement level, opening up 1700 and maybe 1707.80, 61.8% retracement level in the short-term. A major recovery in gold would be tipped off, with a hold above 1700, and gain traction with a break above 1760 area. If risk aversion prompts such a move, we would have to consider gold returning as a safe haven. For now, the recent dip itself is enough of a barrier for safe haven flow back into gold as the volatility is too wild.
Bearish Break: The break below is not immediately a bearish continuation signal. There are many cases of a broken triangle that is still followed by further consolidation. A clear break below 1600 might help, especially if 1600, then becomes resistance. This type of price action would first suggest a retest of the 1532 pivot.
Major Bearish Signal: Further decline below 1532 is also a break below the 200 period simple moving average in the daily chart, and adds more weight to the bearish case. However before confirming that the market is in an even more significant correction, our first level of support is near 1480, maybe even the 1500 psychological pivot. Note that the RSI has not broken below 30 even after such a sharp decline. A break below 1532 will likely bring about this signal to confirm the bearish momentum for Q4.
If there is indeed a break below 1532, the question will be whether gold can retrace all of 2011 rally and go back to the 2011 low near 1308?
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Fan Yang CMT
Chief Technical Strategist