In our last analysis, we talked about watching the price action at the weekly resistance area at 1288-1295. Here is what we said, begin quote “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.”, end quote.
Gold’s last week behavior has justified our view. If gold had closed last week above 1295, we would have been bullish on gold. But it did not. Gold managed to shoot up to 1300 area after holding well at 1281-1283, then later turned down quickly to close the week at our weekly support at 1275-1278. Therefore, we were right to point out our weekly resistance as well as weekly support. Now gold is standing at our important weekly support at 1275-1278, which is also a 100-week moving average.
This important weekly support at 1275-1278 is very critical for gold. For the last couple of weeks, gold managed to break under 1275 just to close the weeks either at that support or on higher prices. Therefore we believe if gold manages to close this week well under 1275, it will signal that gold will go into a deep correction for a while.
In order to prove how important this support is, please take a look at the above daily chart. We can see that gold is at the uptrend line again. This uptrend line has been formed since the low of 2018 at 1160 until now. This uptrend line should provide strong support for gold as it did in the past. So if gold breaks down under this important trend line, it will create a huge damage to the technical side of the bulls. And that could mean that the medium term uptrend since last August will be over, and gold will go into a bearish camp for the medium term. However if gold manages to hold this important trend line, the bulls will come back and push the price up as it might signal that the bears are exhausted to break this one down.
Therefore, it is important to watch the price action here before committing to a trade. We think the bears have a technical advantage here because we might have hidden bearish divergence on MACD and RSI indicators. These hidden bearish divergences signify that the recent upswing from 1267 to 1300 was just a correction and price will attempt to go lower under 1267. So we think the bearish case is quite strong for gold. Nevertheless, we still would like to see gold breaks under the important trend line to confirm our bearish case.
So for now, we will keep an eye on the reaction of gold at the support 1275, or the trend line. This is critical for gold. We think it is a strong case that gold will break down under 1275 and eventually break down under the double bottom at 1267. If gold closes this week under 100-week moving average at 1275-1278, we will find the point to add more shorts position because we think the big correction is coming.