Record High Reached as Momentum Slows
Buyers propelled the price of gold to a new high of $4,888 on Wednesday, before it encountered signs of resistance. An intraday pullback followed the high, putting gold at risk of completing a bearish shooting star candlestick pattern with a higher daily low of $4,756. Sellers remain in charge at time of writing with trading remaining in the lower third of the day’s range. The lower third of the range begins at $4,800 and the middle of the range is at $4,822. Such a weak close relative to the day’s range would establish the potential shooting star. But a trigger below the day’s low is needed to confirm the potentially bearish short-term pattern.
Resistance Zone Triggers Short-Term Hesitation
Since resistance is being seen at a previously identified target zone from $4,876 to $4,890, gold is in a logical place for a short-term rest or a pullback. The price zone consists of a 200% extension of the October decline and a 223.6% extension of the recent short pullback, respectively. Given the rejection of price today near in the zone, the market seems to have recognized it. Nonetheless, if bullish momentum can be maintained a breakout of the range on a rally above $4,890 remains a possibility before a drop below Wednesday’s low.
10-Day Average Remains Key Support Level
Gold was propelled higher following a bounce off support near the short-term 10-day average on Friday. This behaviour highlights dynamic support of the 10-day line and therefore a key area to watch during a pullback. The 10-day average was successfully tested as support twice in three weeks and followed each time by new highs. Therefore, as long as support holds at or above the 10-day line, the short-term advance remains solid. If it fails, the 20-day line becomes the key trend support indicator. It is now at $4,523.
Breakout or Pullback to Define Next Move
Since a bull trend continuation breakout triggered only last week, movement to higher prices is anticipated following a decisive advance above $4,890 and a daily close above it. That could come soon or it may follow a short rest. The further gold rises away from the 10-day average, the closer it gets to a potential correction. But as noted above, if a pullback occurs, it should end at or above support near the 10-day average.
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