Gold Market Analysis – July 26th 2019

Hello traders ! Last week, gold attempted a breakout to the upside when it broke resistance at 1440 and traded as high as 1452. However since then, gold has turned down over $30 from that level. In this analysis, we will look into possibilities that gold may have made a false breakout and it will go into a deep correction as soon as next week.

Gold Daily Chart 01

Please take a look at the first daily chart above. On the daily chart above, gold formed a bullish triangle. It seemed like gold had a bullish breakout of the triangle when gold broke the triangle and reached 1452. However, gold formed a bearish engulfing candle on the next day. The negative divergences on RSI & MACD did not support the breakout either when gold reached a higher high but the indicators did not reach a higher high. Both Fibonacci extensions show that gold reached a potential reversal zone at 1452-1455. Therefore if gold reverses from 1452 and trades back into the triangle, it will be a false breakout to the upside. If it is a false breakout, gold will likely go down to test support zone at 1380-1370.

Gold Daily Chart 02

Now please take a look at the second daily chart above. There are two uptrend lines on the second daily chart. The first one is where the upward rally started from 1320 (the black trend line). The second one is where the rally started from 1160 (the blue trend line). It seems like gold has just broken under the first trend line. Gold might bounce to retest and climb above this trend line but if it does not hold above it and goes lower, gold might head into a deep correction to lower support zones (yellow zones). The first support zone is at 1380-1365. The second support zone is at 1340-1350. And the last support zone is at 1320-1330. So we do not rule out a possibility that gold might even reach the second trend line once gold will go into a big correction for the next daily cycle.

Gold Weekly Chart

Lastly, we want to analyze the weekly gold chart. On the weekly gold chart above, gold forms two harmonic ABCD patterns. First harmonic AB = CD pattern in which the AB leg is from 1046 to 1375, and the CD leg is from 1122 to 1452. Second harmonic ab = cd pattern in which the ab leg is from 1160 to 1346, and the cd leg is from 1266 to 1452. Both of the harmonic patterns end at 1452 which shows that the 1452 level is likely a reversal point for gold in short to medium term. The RSI indicator on the weekly chart is at an overbought level that has not been seen in the last 8 years (since September 2019). So even though gold has just started a new bullish phase, it looks like it is due for a correction at least in short term. This weekly candle may appear as an inside bar pattern (or it is called harami candle in Japanese), if it closes under 1425. If this weekly candle confirms as an inside bar pattern, it may signal the downswing correction as soon as next week. The strong weekly support zone is at 1380-1360.

In conclusion, we show you three technical studies that suggest a possible downswing correction to 1360-1380 level in next couple of weeks. However gold needs to take out the 1400 level first. As long as 1400 level still holds, there is still a chance that gold may spike to a higher high than 1452. The spike in gold can be possible because there is FOMC next week where FED is expected to announce a first rate cut in 2019. Now the market is already priced in a 25 bps rate cut so if there is no surprise, we do not think the news will affect the gold market much. Yet if FED decides to go for a 50 bps rate cut then the situation might change. Nevertheless as technicians, we think the news is already shown on the chart. So as long as 1452 resistance holds, we will look for downside at 1380 or 1360.


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