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James Hyerczyk
Comex Gold

Gold futures finished higher on Monday after testing its lowest level since December 2 early in the session. The move was likely fueled by short-covering and profit-taking following a four-day break of $145.40.

The price action suggests that new sellers were trapped when they shorted weakness through the December 14 main bottom at $1820.00. The bear trap was launched when speculative shorts bet on the steep decline to continue when a swing bottom was broken. Instead of new sellers coming in on the move, it looks as if the breakdown was fueled by sell-stops.

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On Monday, February Comex gold futures settled at $1850.80, up $15.40 or +0.84%.

Although rising U.S. Treasury yields continued to keep a lid on prices, some of gold’s rebound could be attributed to an intraday break in the U.S. Dollar. The greenback managed to close higher against a basket of major currencies, but well off its intraday high.

Daily February Comex Gold

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The trend turned down on Monday when sellers took out the last swing bottom at $1820.00. The main trend will change to up on a move through $1962.50. A trade through $1767.20 will reaffirm the downtrend.

On the upside resistance is a pair of 50% levels at $1864.90 and $1889.80.

On the downside, the major support is a long-term retracement zone at $1780.50 to $1705.20.

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Short-Term Forecast

Monday’s minor reversal bottom may be signaling that the buying is greater than the selling at current price levels. This may be enough to fuel a retracement into at least $1889.80. Since the main trend is down, sellers are likely to come in on a test of this level.

Taking out $1817.10 will indicate the selling pressure is getting stronger. This should trigger a break into $1780.50 to $1767.20.

Tuesday’s price action should tell us if investors are willing to short weakness, or if they prefer to wait for a counter-trend retracement.

For a look at all of today’s economic events, check out our economic calendar.
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