In our last analysis, we talked about the important support at 1260-1270 that gold needed to break through in order to go down to lower supports. We were looking forward for gold to give up that support 1267-1270 eventually and go down quickly to 1253-1258. Despite that, gold has held that support and rebounded quickly to the upside. Gold market action has surprised us somehow. More importantly, the re-bounce after touching support at 1267 happened right after the good non-farm payroll data came out. A good NFP number should supposedly give U.S Dollar a boost and be negative for gold but that did not happen. Dollar was sold off while gold shot up to 1282 before closing the week at 1278-1279. So what we thought of the gold market was some kind of “Sell the rumor, Buy the fact” for the NFP data. Market has sold off for two days after the FED meeting, predicting a good number of NFP data. And then market bounced up when an actually real good NFP number came out. Moreover on Sunday, President Trump tweeted that he would raise the tariffs on Chinese goods from 10% to 25% for the total of 200 billion Dollars and consider applying the same rate to the rest of 325 billion Dollars. His tweet has caused the sell-off in most Asian stocks index as well as the S&P and Dow Jones futures index. During Asian session, gold has benefited from the flight of save-haven, traded as high as 1285.
Gold re-action at 1267-1270 has signified that this support is a very important support in short term. Unless gold breaks under 1267, the action remains at least sideways in very short term. Until now we still remain bearish for gold but we need to be careful on the recent action of gold. Take a look at the above 2-hour chart. Gold might have created a double bottom at 1267. If gold breaks above the resistance at 1288-1290, the double bottom pattern will be validated. That would mean gold will trade a lot higher, possibly reach 1300 or more. However until now, we do see some kind of rejection at the resistance zone 1285-1288. So we tend to think that gold would trade in a sideways action before it breaks out or breaks down. On the above 2-hour chart, we draw a descending triangle pattern. We think gold would possibly trade sideways in that triangle pattern. Because descending triangle pattern is a bearish continuation pattern, the ultimate action would be a breakdown under support at 1267. That ultimate breakdown would send gold to our lower expected support at 1253-1258. Of course, we need to prepare for second scenario that if gold holds support at 1267, the breakdown might never happen but a breakout above can come instead. But for now because we remain bearish in short term, we favor a breakdown instead of a breakout. However it is important to take note that our descending triangle pattern will be invalid if gold manages to break resistance at 1288-1290.
Last week, we mentioned about the re-test of neckline of the head & shoulders pattern on the daily chart. Gold retested the neckline for the first time when gold rebounded from 1267 to 1288 and then quickly turned down. We thought after a successful re-test of neckline and then a turn down from there, gold would go down hard. However today, gold has retested the neckline for the second time when gold rebounded from 1267 last Friday and traded as high as 1285 on Asian session this early morning. Until now, the resistance at the neckline seems to hold and it looks like gold bears are trying very hard to protect it from gold bulls. If somehow gold bulls are able to push price over the neckline, our short-term trend can reverse from bearish to bullish. We have to be careful again because of the recent fundamental news about the trade wars. Once the fundamental changes, our hypothetical technical analysis won’t work anymore. We will have to watch other markets reactions, such as stocks market or bonds market. If U.S stocks market continues to sell off this week because of the trade war news, gold will be benefited as a safe-haven. And that could lead gold to break over the neckline.
So on the above daily chart, we draw a resistance and a support area to watch for. As for the support, it is again at 1267-1270. As for the daily resistance, we identify the zone around 1288-1294. The neckline resistance is around 1288 while the 50-day and 100-day moving averages are very close to each other at 1293-1294. These daily moving averages should provide resistance for gold. Plus they mostly cross the downtrend line resistance at the exact prices. If gold has a daily candle close above this resistance area, we think the short-term bearish trend is over. As long as gold remains under that resistance area, there is still a possibility that gold will go down to test the support at 1267-1270 and finally break down under it.
For now, we remain cautiously bearish for gold. In a very short term, we think gold might trade in a sideways range 1267-1288. However a break out over 1288-1293 will tell us that bearish short term trend is over. Otherwise, we expect gold to trade in a descending triangle pattern before breaking down again.
GOLDTREND.NETGold Market Analysis – May 6th 2019