Although gold triggered a continuation of the bounce on a rally above yesterday’s high, it was unable to sustain it. At the time of this writing gold is on track to complete the day near the opening price with a doji possible. Today’s price action reflects indecision and is not a sign of strength. Resistance was seen today at a high of 1,975 but the potential close reflects weakness. It puts the rally at risk of failure as the second day off the low is already showing signs of weakness.
Drop Below 1,955 May Result in Test of Recent Lows
A drop below today’s low of 1,955 increases the chance for a test of support around recent lows and specifically the 50-Day EMA at 1,940. If the retracement low of 1,932 fails to halt a decline and prices drop below there, the next lower support zone will be the next target. It starts around the 200-Day EMA at 1,917 and goes down to the 50% retracement level at 1,910.
Overall Bullish Outlook Remains
Nevertheless, until there is a drop below 1,932, the expectation is for a continuation higher. If today’s low is broken, support at or above the 1,932 level is anticipated to hold. Gold has shown signs of increased strength recently as it rose back above both the 50-Day and 200-Day EMAs, broke out of a falling trend channel that defined the recent correction, and during the recent rally it was able to close above the lower swing low at 1,987 from July 20. These are all signs of strength that improve the chance that gold will further strengthen as it heads towards record highs.
Although a rise above today’s high of 1,975 shows strength, today’s price action puts such an advance at risk of not being able to sustain itself. The situation will be clearer following a pullback or additional price action of another day or two. Given that the recent advance saw gold rise by 11% in only 15 days, it may take a little while longer to set up for another sustained rally of some degree.
Bruce boasts over 20 years in financial markets, holding senior roles such as Head of Trading Strategy at Relentless 13 Capital and Corporate Advisor at Chronos Futures. A CMT® charter holder and MBA in Finance, he's a renowned analyst and media figure, appearing on 150+ TV business shows.