Gold to continue the longer-term bear trend and break lower in September?
Gold has been in a bear trend now for exactly three years since topping out at 1920.30 at the beginning of September 2011. We saw particularly sharp losses from October 2012 through to June 2013 when the price collapsed from 1795 down to 1180. Over the past year we have witnessed more of a consolidation of these sharp losses with the price stuck in a narrowing range as volatility decreases.
The weekly chart below clearly shows this consolidation triangle pattern.
You can see in the chart how we drifted lower through July and August to retest the lower trendline. To be accurate this trendline is in the 1275/70 area so this quite perfectly held the August low.
I have written one or two articles for InterTrader.com over the summer about gold and in none have I felt particularly positive on the price. I noted that any short-term spike higher on geopolitical tensions was never sustained and in fact despite trouble in the Middle East and the Ukraine this market has been in a bear trend now for two months.
We looked at the strength of the US dollar last week and with this continuing strength the concern now is that gold will break below the lower one-year trendline of this triangle pattern. This will act as a sell signal to the large bank and hedge fund traders who will be forced out of their long positions. Gold bears will also see this as an opportunity to add to or enter fresh short positions.
If we look at the shorter-term daily chart below we can see more clearly how gold is already in a two-month bear trend.
The red 200-day moving average line acted perfectly as resistance in the second half of August and you can see how this has historically worked quite well as support and resistance in the chart above over the past four months. This is an added negative to the longer and shorter-term bear trends and if we now start to hold below the blue 100-day moving average at 1285 it is likely to increase pressure on gold and risk another test of that one-year trendline in the low 1270 area.
This of course is key and as I stated above a break below here and in particular a close below this area on a weekly basis is likely to trigger significant selling pressure and a retest of our first target of May/June lows in the 1242/40 area.
In order to change this negative outlook we will of course need to at least hold the one-year trendline support at 1275/70 but it is only above 1295/1300 that I could change my outlook and start to feel more positive about the gold price throughout the autumn and into the winter.