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Gold tests important support in the two-and-a-half-year bull trend

Jason Sen

Gold has been trending lower after a four-month period of sideways action from January to April. The bounce off the red 200-day moving average in early May topped exactly at the blue 100-day moving average at $1325. As you can see in the daily chart below, gold then collapsed below the 200-day moving average at around the same level as the longer-term 23.6% Fibonacci support at $1308.

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Quite a swift move followed to $1282. I see no technical reason for the bounce from here. Nonetheless, technical analysis worked again as we held the 200-day moving average and 23.6% Fibonacci perfectly on the bounce to $1306/1308.

It’s clear that technical analysis has been useful for finding profitable levels. The peak for June on the 14th created a small bull trap as we spiked to $1309. From here we started a new leg lower targeting what is now important support. This time the 500-day moving average at $1276 comes into play, coupled with the longer-term 38.2% Fibonacci support at $1272.

A third reason to expect this area to act as strong support comes in the form of the 11-month bull trendline which joins the lows in July and December 2017. This intersects around the middle of the range at about $1274.

Here is a close-up view, also showing the slow stochastic just entering oversold territory for good measure.

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So the most important support of the week is holding as I write. A bounce from here gives long traders a profit as we target $1279/80 and the first resistance at $1285/86. We should at least pause here on the first test. Further gains eventually meet the main challenge for bulls today on the recovery at $1291/93. There’s a good chance we’ll pull back from here on the first test. We could even re-test the important support at $1276/1273 for a second buying opportunity.

If bulls can eventually clear $1295 we should head for strong resistance at $1306/08. We know all about this level from the price action in late May and early June, don’t we?

Note how we also have the blue 100-week moving average at $1275 in the weekly chart below. That’s a fourth reason to expect the current area to hold for a bounce in the two-and-a-half-year bull trend.

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We currently have a low at $1270 for gold, made yesterday. A break below $1268, therefore, is like to trigger stops on long positions. This will signal the important support area has been broken. A weekly close on Friday below $1270 will be further negative confirmation and continues the three-week bear trend targeting $1264/63, $1260/59 and $1253/52. We are likely, however, to continue lower as far as $1250 and even $1245/44. This level represents a 50% correction of the December 2016 to January 2018 rally.

Although significant, I would not be surprised to see further losses as far as the two-and-a-half-year trendline and 200-week moving average support at $1239/35. This should offer a low-risk buying opportunity in what will be severely oversold conditions, both on the daily and weekly charts.

Jason Sen

Technical Analyst & Trader

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The content of this article is the personal opinion of the author and not Intertrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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