Gold about to start a bull run?
If you are a regular reader of my weekly articles you will know that gold has been a focus for me in recent months. This started with the test of important longer-term Fibonacci support at 1086. You may remember that we hovered around this area in the second half of July and the first week of August. Throughout this whole three-week period however we did not see a daily closing price below 1086.
This lead to a good recovery to 1168 but we have since fallen back to 1098 and then bounced to 1140. So is this the beginning of a sustained recovery or are we just seeing a bounce in a bear trend?
The daily chart above shows the price action for the whole of this year so far. The immediate Fibonacci resistance at 1140 has so far held the topside in mid-September, but the key level for gold bulls to watch is the blue 100-day moving average, which intersects with the longer-term downward-sloping trendline.
This trendline started right at the beginning of the year in mid-January as you can see in the chart. It has already been tested three times in May and August and held both these rallies perfectly. Clearly this validates the line which means we may pay it much respect!
This level comes in around 1145/50 into the end of the month so this will be the main challenge for bulls at this stage. There is always the danger of a false break above, which sucks in short-term bulls, only to see the price reverse and resume the bear trend. Therefore we would need to see at least a two-day close above to help confirm a breakout. A weekly close above would be further confirmation and a monthly close at the end of September would be even better for bulls.
The chart below zooms in to view the last three months of price action and more clearly shows a sideways trend for this period.
If any investors are looking to gold as a safe haven, there are certainly enough worries on the global economic front, although inflation is certainly not one of them and this is often the main driver of price gains. However a weaker US dollar can also be a trigger and should the Federal Reserve fail to raise rates by January this could certainly trigger a move.
So what happens if we fail to beat 1145/50?
At the moment it looks like more range-trading with immediate support at 1120/1115. Below here however risks a slide to the short-term trendline support you can see in the chart from the start of August. This level is seen at around 1106/03 into the end of the month. Obviously a break below here would be a problem for bulls as this could trigger a re-test of the important longer-term support at 1090/85.
This is the last line of defence for bulls of course. A double bottom at, or just above, 1077 just about keeps longer-term recovery hopes alive. However, a break below this level would act as a sell signal in the bear trend and kill any recovery hopes.
Jason Sen – Technical Analyst & Trader
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The content of this article is the personal opinion of the author and not InterTrader.com. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.