In our last analysis, we talked about the trade war between the U.S and China and possible sell-off of the stocks markets that could lead to a run to safe-haven assets like gold. We also identified a daily resistance area at 1289-1293 that gold needed to break through in order for us to change our view from bearish to bullish. So during last week, stocks market did sell off but then rebounded when the tariff was imposed. Gold hovered around the resistance 1289-1293, reached as high as 1292 but never broke through our daily resistance area. That could mean the news has already priced in and so nothing seriously happened last week. Gold price remained boringly in a tight trading range.
We think this week might see gold just continue to trade in a boring manner like last week, a range between 1280ish-1290ish. However on the intraday chart, we have found a pattern that could lead gold to a break to the downside again. Please take a look at the above 1-hour chart. There is an active head and shoulders pattern. Gold price is now testing the neckline support at 1281-1283. If price manages to break down under that neckline, gold will likely go down to test support at 1267-1270 again. And that could mean the bearish trend will continue because price can’t break through daily resistance at 1289-1293. Nevertheless, if the neckline provides strong support and gold bounces up from it, gold price can go up to test the daily resistance at 1289-1293. Therefore, it is important to watch prices reaction at neckline before committing to any trades.
n this analysis, we bring to you a weekly chart’s analysis based on top reversal patterns and price action. We see a continuing trend of reversal patterns that appeared at the top. Please take a look at the weekly chart above. From the left to right, there are reversal patterns that appeared at the top. They are a bearish engulfing pattern at 1375, a double top pattern at 1365, and recently a shooting star pattern at 1350. After these top reversal patterns were formed, price would often go into very deep correction. Hence, there is likely a possibility that price will repeat history this time also.
Furthermore, we also see a tendency that after breaking down under important support on the weekly chart, price would comeback to retest that support zone which became important resistance area. So will price repeat the same thing this time ?
Last year when gold reached 1365 and started to correct, we saw a series of sideway action candles at the resistance area before seriously breaking down. It looks like the same sideways actions candles also appear this time. Hence if price doesn’t break through resistance area, it can start going into deep correction mode.
The key here is to watch the price action at weekly resistance area. This weekly resistance area is at 1285-1295. Please note that 100-week moving average seems to provide strong support on the downside. Therefore, one to two weekly closes under that 100-week moving average can signal that deep correction will start to begin. The 100-week moving average now stands at 1275-1278. However, a breakthrough that weekly resistance area, or above 1295 will signal that weekly trend will continue to the upside.
So for very short term like intraday, we watch price action around neckline support at 1281-1283. A breakdown under that neckline can lead gold to test support at 1267-1270. The resistance area for intraday remains at 1289-1293. If gold holds neckline support well, gold can go up to test that resistance zone.
For daily to weekly period, we watch price action at the weekly resistance area at 1285-1295. A weekly close above 1295 would mean weekly trend continues to be bullish. If price does not break through that weekly resistance area, we will look forward for weekly gold to closing under 100-week moving average at 1275-1278, which will signal a very deep correction ahead for gold.