Gold halts decline, but bearish risks still intact

Gold is trying to heal its wounds after sliding to an almost one-year low of $1,697/ounce last week, but the technical picture is not bright enough to back a potential proper recovery in the short term.

On the one hand, the precious metal seems to have escaped an extension towards the lower boundary of the four-month-old bearish channel, raising hopes that the bulls may dominate in the coming sessions. On the other, the RSI is still below its 30 oversold level and the Stochastics are already looking for a downside reversal despite their latest soft upturn, suggesting sellers are still active in the market. The fact that the broken $1,723 support region has switched to resistance today is also feeding skepticism.

Should the bears retake control, they will not hesitate to press the price towards the 2021 lows this time, where the channel’s lower bar is currently located at $1,645. In case that floor collapses, the next pivot point could be found within the $1,640 – $1,600 constraining zone taken from February – April 2021.

On the upside, a move above $1,723 could immediately see a test around last week’s ceiling of $1,745. Snapping the latter, the bulls will next target the resistance line at $1,765, which they could not overcome earlier this month. If they prove successful this time, boosting the precious metal above the 20-day simple moving average (SMA) too, the door will open for the $1,800 psychological number and the 50-day SMA.

In brief, although the market is trying to push for some recovery at the moment, there is not enough bullish evidence to support a potential upside reversal in the price. Perhaps, a close above the constraining area between $1,723 and $1,745 may reduce downside risks, while a sustainable break above $1,765 might be considered a bigger achievement.

About the author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics. Previously, she earned a bachelor of science in Economics from the University of Cyprus. Apart from foreign exchange markets, her research interests include the impact of International trade on labour markets and product development.