Gold fell yesterday to support at 1282 as we expected in our last analysis. At the moment the support at 1280-1283 still holds. Two weeks ago, we sent you an analysis about the head and shoulders pattern on the daily chart, and we mentioned that if price breaks down under neckline around 1281-1284, price will slump to 1270 (see above picture). However, at that time the neckline at 1281 proved to be a strong support and gold bounced back to 1310. Yet last week we sent you another report saying that we do believe that head & shoulders pattern is still valid, and price would go down to test the neckline again and eventually break down under it. Price did exactly what we expected except the breaking down part that is still on the move. Gold went up to 1310 just to reverse back to 1283 where the neckline support is. Any breakdown under that neckline will surely bring gold to 1270 or even lower.
Besides having a head & shoulders pattern, gold is also trading within a descending triangle pattern on the daily chart (see above picture). A breakdown under the flat lower line will lead to more downside ahead. Or a breakout above the descending upper trend line will see price moving up to test recent high at 1345. So we do not rule out any possibilities here. However, it is very important to note the following:
“While a descending triangle pattern is a continuation pattern and usually is found within downtrends, it is not unusual on occasion for the descending triangle to be found at market tops. A close below the flat lower trend line would signal major trend reversal to the downside.”
Therefore in this case, a lower breakdown is more favored than an upper breakout.
By combining two patterns, head & shoulders and descending triangle, can tell a very important thing: Any move lower than 1280 will open door for a big move downside.
So last week’s candle was red and it is in a form of an upside rejection candle, which confirms our bearish case for gold. Due to that, we expect more downside this week but gold needs to break down under 1280 first.
We will keep watching the support at 1280-1283. Any attempts to break that support can take gold to 1267-1270. If 1280-1283 holds well, gold might try 1300 again but it is still within a triangle pattern above.