Gold posted negative returns after 4 weeks with a crack of $10 in a volatile week of trade. Start of the week saw gold rising to new highs after which it slammed brakes on gains and reversed from the high point in later half of the week falling so much so that it even eroded gains of earlier week. The candle created is a bearish one on weekly basis but it can be also seen as an technical correction over bearish bias, and such a candle might create a cloud of uncertainty over the movement of prices on either side.
On the chart –
Gold continued its upside to create new highs but was followed by incremental selling which made the prices settle lower broadly on account of the technical formation of double top. Only positive to be taken out from the week is it still managed to create a higher high and a higher low which may signal some bullishness in the metal. The circle denotes the trading range of the metal. With such a price action we have 2 scenarios –
1. Gold created a double top at $1298 which led to a massive technical correction. This also indicates selling/shorting at higher levels. After such a fall and breaking of supports, gold can further correct towards $1261 (A) which is a fairly good support in the weekly chart. If this support area fails to hold gold can slide further to $1244 (B) which again is a support/buying area of the metal. Finally on any adverse situation if this area gives up we might see a next leg of selling towards $1223 (C).
2. Gold’s fall from highs is more technical than fundamental which can be a positive sign as there is no negative news flow which might aid incremental selling from the current levels. In order to continue the uptrend gold must initially cross the very crucial price point of $1273 (1) which had acted as a stiff resistance capping gains on closing basis. If this resistance is crossed we might see a rally to $1280-81 (2) which is key point of interest since its a closing of the earlier week which might act as as a brief barrier to upside. A close above this level might propel the metal higher to $1298 (3) if the situations favor buying in non-risky asset class.
Bullish view – Gold bulls must take heart from the fact that they managed to create new highs and the weekly candle even negative created a higher high and a higher low which has been seen as a positive indicator for the prices. Price action denied bulls to continue the uptrend but a close above $1269 is still considered bullish in a looming bearish atmosphere. If this price point/support holds we might see continuation of the uptrend.
Bearish view – Bears were on full charge as they eroded the prices from the highs of $1298 to a low of $1269 in a span of 3 days, even dismissing the gains accumulated from earlier week. Clearly a bearish momentum was visible as selling pressure gained strength when the prices were falling. If this pressure continues gold is expected to fall further towards supports once again to test the demand of the metal at lower levels.
On larger terms, Gold is in a uncertainty cloud thus neutral as such corrections which are based on technical outlook may or may not last along with a major event of U.S fed rate hike decision to take place in the next week. Prices are expected to be fairly volatile in the coming week.
Possible trades are on both sides, Gold can be sold under $1269 for the targets of $1261 and $1244 with a stop loss placed above $1278. Longer term target $1223.
Similarly gold can be bought above $1273 for the targets of $1281 and $1298 with a stop loss placed below $1261. Longer term target $1308.