The direction of the December Comex gold futures contract is likely to be determined by trader reaction to the 50% level at $1981.70.
Gold futures are under pressure early Wednesday as the U.S. Dollar rebounded after robust U.S. manufacturing data bolstered hopes around the global economic recovery, tempering foreign demand for the dollar-denominated asset.
After hitting a two-week high on Tuesday, gold prices started to retreat in response to a bounce by the greenback. The U.S. Dollar rebounded off two-year lows against a basket of major currencies after U.S. data showed manufacturing activity accelerated to a near two-year high in August. The firm manufacturing activity also boosted investor demand for riskier assets, limiting inflows into safe-haven bullion.
At 05:41 GMT, December Comex gold is trading $1969.60, down $9.30 or -0.47%.
The main trend is up according to the daily swing chart, but the formation of the secondary lower top at $2024.60 may be indicating a possible shift in momentum. A trade through this top will signal a resumption of the uptrend. The main trend changes to down on a move through the last swing bottom at $1908.40.
The minor trend is also up. A new minor top was formed at $2001.20 earlier in the session on Wednesday.
The short-term range is $2089.20 to $1874.20. Its retracement zone at $1981.70 to $2007.10 is resistance. This zone stopped the buying on Tuesday at $2001.20.
The new minor range is $1908.40 to $2001.20. Its 50% level at $1981.70 is the first downside target. Since the main trend is up, buyers could come in on a test of this level. Look out to the downside, however, if this level fails as support.
The major support is the $1889.70 to $1842.60 retracement zone.
Based on the early price action, the direction of the December Comex gold futures contract is likely to be determined by trader reaction to the 50% level at $1981.70.
A sustained move under $1981.70 will indicate the presence of sellers. This could trigger a break into the minor pivot at $1954.80. Buyers could come in on the initial test of this level.
The 50% level at $1954.80 is also a potential trigger point for an acceleration to the downside with the next major target the main bottom at $1908.40.
Overcoming and sustaining a move over $1981.70 will signal the presence of buyers. This could create the momentum needed to challenge the minor top at $2001.20 and the Fibonacci level at $2007.10. The latter is a potential trigger point for an acceleration into the main top at $2024.60.
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James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.