Gold remains in a short-term bear trend


Jason Sen

Gold remains in a short-term bear trend despite the day of panic in global financial markets on Tuesday. Gold had been trading in a $60 range since the very start of the year but finally broke out of the range two weeks ago in mid-May.

It was actually the break below the 200-day moving average (the red line) at 1306 that triggered stops. This line had held perfectly at the start of May as you can see in the chart below.

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In fact the blue 100-day moving average has also been an important factor this year. Note how prices bounced perfectly off the 100-day moving average on both sell-offs in March. Also see how, once the 100-day moving average was broken in late-April, it worked perfectly as resistance in mid-May.

As I write, gold has been in a bear trend for seven weeks. Despite the panic over the political situation in Italy this week, gold failed to catch much of a bid. While stocks and the euro fell, investors poured in to typical safe havens such as bonds, the Swiss franc and the yen. Gold, which also usually benefits in times of financial turbulence, only managed a small recovery.

The four-hour chart below shows the recent bear trend and recovery to the upper trendline.

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You can see how prices are just starting to break above this trendline. You might see this as a short-term buy signal. However, much more important is the longer-term daily chart and, if you look back above, you will remember the red 200-day moving average at 1307/08. This is in line with the longer-term 23.6% Fibonacci resistance at 1308/09. This 1307/09 area also happened to be excellent support from January to March, so we have price reinforcing the importance of this resistance.

Note how gold bounced from just above the green 500-day moving average at 1278/77 in mid-May, when oversold conditions prevailed on the slow stochastic. Gold really does respect these longer-term moving averages! Let me show you a close-up of the daily chart.

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Assuming gold continues to hold strong resistance at 1317/09, and dips back below the short-term descending trendline at around 1300, it looks likely bears will press for another test of 1282/77. Just below here we meet the 38.2% Fibonacci and a 10-month bull trendline at 1272/70. The reaction here will determine whether gold remains in a 17-month bull trend.

Bulls will look more in control with a break above 1313/14. In this case they could then target the 100-day moving average at 1325.

Jason Sen

Technical Analyst & Trader

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