Gold rose over $15 in the past week recovering from a massive fall as it rebounded from its long term support area. This rally was largely on back of dismal data coming from America which pushed the dollar index to new lows thus pulling up the yellow metal prices. Gold climbed back into its trading range of $1215-$1297 but still remains in the uncharted waters as shown in the chart below. Weekly chart is indecisive but current move favors more upside than downside as dollar index broke the support on the monthly chart.
On the chart –
Gold’s price action was on expected grounds as it took support on the edge of the bearish circle and rose till the edge of the bullish circle which was highly likely if the support was not breached. But such a move which is still outside both circles doesn’t give clear indication of further price movement. Circles denote the trading ranges, green one is the bullish circle while the red one is the bearish circle. We have 2 scenarios –
1. Gold climbed back into the trading range which suggests more upside till it remains in it but for confirmation gold needs to trade above the black trendline which it resisted in the past week and move into the green circle as shown in the chart. If gold breaks this resistance then it can move higher to $1241 (A). If this price point is crossed gold can move further up to $1248 (B) which is a fairly good resistance. If this area is conquered gold can race up to $1269 (C) which is again a good resistance on the chart and it may alter the direction of the gold if this price point is not crossed. And if this crucial resistance is crossed gold can move higher to $1281 (D).
2. Gold’s move can be considered as a relief rally as it fell too much in less time. And the rejection at the resistance on the edge of the circle and also the black trendline suggests gold may again resume its downtrend. If the rally fails gold can slide back to $1217 (1). This is a good support and bottom of the bullish circle, if this fails to hold gold can move lower to $1204 (2) which is a long term support area for the metal on all time frames on the chart. If this crucial price point is breached gold can slide lower to $1184 (3). And if here also the price fails to change course it may fall further to $1169 (4).
Bullish view – Bulls were on the charge in the week as the price moved higher from the lows of $1204 to the highs of $1232 on account of a weaker dollar index and lower level buying since the ever crucial support area was not breached. According the Fib retracement gold should move higher which will give more consolation to the bulls. As per the technical indicators gold is expected to move higher towards $1248-$1251.
Bearish view – Bears took a breather as gold rallied from the lows which is broadly considered as a relief rally since no decisive moves can be identified since gold is in uncharted waters between the 2 circles. Rejection on the edge of the bullish circle indicates continued bearishness which is also confirmed by the black trend line which was not crossed on closing basis. If this rejection at higher levels continues gold can fall back into the bearish circle which will erode the prices to $1184 and lower.
On larger terms, Gold is neutral with a mild positive bias since the dollar index is trading at fresh lows. Prices are expected to be sideways until either of the trading ranges are broken into. Current setup favors a break into the bullish circle.
Possible trades are on both sides, Gold can be bought above $1234 for the targets of $1241 and $1248 with a stop loss placed below $1217. Longer term target $1269 and $1281.
Gold can be sold under $1221 for the targets of $1217 and $1204 with a stop loss placed above $1234. Longer term target $1184 and $1169.