Despite Strong Uptrend, Gold Vulnerable to Reversal Top

Comex gold futures are trading higher early Tuesday, but gains are being capped by a rise in U.S. Treasury yields and an overnight recovery in U.S. equity markets. A weaker U.S. Dollar is helping to provide some support. The early price action suggests heightened volatility is likely to remain the central theme over the near-term.

At 10:32 GMT, April Comex gold futures are at $2011.30, up $15.40 or +0.77%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $186.42, up $2.74 or +1.49%.

The price action suggests investors are reacting less to the headlines and more to gold’s relationship with interest rates, the dollar and risky assets. Additionally, it looks as if buyers are trying to establish support at the psychological $2000 level with a new all-time high their minimum objective.

In other news, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.8% to 1,062.7 tonnes on Monday – their highest since March 2021.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at $2027.80 will signal a resumption of the uptrend.

Taking out $1821.10 will change the main trend to down. This is highly unlikely, but due to the prolonged move up in terms of price and time, the market is vulnerable to a potentially bearish closing price reversal top. This chart pattern won’t change the main trend to down, but it could trigger a 2-3 day correction designed to alleviate some of the upside pressure.

The minor trend is also up. A trade through $1878.60 will change the minor trend to down. This will shift momentum to the downside.

The major range is $2117.10 to $1682.40. Gold is currently trading on the strong side of its retracement zone at $1951.00 to $1899.80, making it the support that is controlling the near-term direction.

Short-Term Outlook

The direction of the April Comex gold futures contract into the close on Tuesday is likely to be determined by trader reaction to $1995.90.

Bullish Scenario

A sustained move over $1995.90 will indicate the presence of buyers. If this move creates enough upside momentum then look for a run into the intraday high at $2027.80. If the buying volume is strong enough then a move through this level could trigger an acceleration to the upside with the August 6, 2020 main top at $2117.10 the next major target.

Bearish Scenario

A sustained move under $1995.90 will signal the presence of sellers. If this move generates enough downside momentum then look for the selling to possibly extend into the long-term Fibonacci level at $1951.00.

Taking out $1951.00 will indicate the selling pressure is getting stronger with the long-term 50% level at $1899.80 the next likely target.

Side Notes

A close under $1995.90 will form a closing price reversal top. If confirmed, this could trigger the start of a 2-3 day correction with $1951.00 to $1899.80 the main target zone.