Earlier today, gold tested the 2023 high, but did it change anything?
Technical Picture of Gold
In today’s article I’m sharing with you my thoughts on current situation in the yellow metal (including quotes and bearish scenario from Friday’s Quick Gold Alert). Have a nice read.
Looking at the weekly chart, we see that after several days of wavering, gold finished last week under the previously broken upper border of the blue rising wedge, invalidating the earlier breakout.
Although this is a bearish development, the red candle materialized on visibly lower volume than earlier increases, suggesting that the sellers may not be as involved in declines as it may seem at first glance. We can also observe the same situation in the short term.
From this perspective, we see that Friday’s session took gold a bit lower once again, but the volume that accompanied this decline was the lowest in March, which suggests decreasing interest of market participants in fighting on the trading floor.
What could this be caused by?
In my opinion, the constant failure to go below last year's peak, which causes mood swings and confuses market participants.
And speaking about the 2023 peak… What happened earlier today?
Before, we answer this question, let’s recall the quote from the last Quick Gold Alert:
(…) Looking at the 1-hour chart, (…) gold broke below the lower border of the purple rising wedge, which opened the way to lower levels (…)
(…) if the yellow metal extends losses from here, the first downside target would be the 78.6% Fibonacci retracement and the previously broken red declining line based on the recent peaks (at around $2,161.50).
However, if it is broken, the way to recent intraday lows will be open.
If they withstood the selling pressure, we could see a rebound before the session closure (…), but if the green support line based on them is broken, the way to the major very short-term support (the Dec. 2023 peak) will be open.
Looking at the daily chart, we see that the situation developed in line with the bearish scenario and gold extended losses earlier today, slipping temporary under the 2023 high.
Thanks to today’s move, gold futures hit an intraday low of $2,149.25, testing also the 138.2% Fibonacci extension based on the recent very short-term upward move seen on the 1-hour chart below.
Thanks to this drop, the commodity also approached the 127.2% Fibonacci extension (based on the earlier upswing), which together caused a rebound before today’s U.S. market open.
What did this lead to in the following hours?
Looking at the 4-hour chart, we see that the yellow metal came back above the previously broken 2023 high, which encouraged the bulls to fight. As a result, the commodity approached the red declining resistance line based on the previous peaks.
As you see, this line was strong enough to stop the buyers on Friday, which suggests that history could repeat itself once again later in the day – especially when we factor in the current position of the 1-hour indicators (the Stochastic Oscillator generated a sell signal, while the CCI moved to its overbought area).
If this is the case and gold reverses in this area (currently at around $2,168.75), we could see a re-test of the 2023 peak.
Nevertheless, please keep in mind that even if we see a pullback before the session closure, the 4-hour CCI and Stochastic Oscillator generated buy signals, suggesting that another move to the upside could be just around the corner – especially if gold closes today’s session above the 2023 high.
In this case, the bulls will gain an ally – an invalidation of the earlier tiny breakdown (it could be also considered as a verification of the earlier breakout above the 2023 high), which could trigger further improvement and (at least) a test of the red gap ($2,179.50-$2,180.80) formed on Thursday in the following day(s).
Summing up, weekly closure under the previously broken resistance line, the red pro-declining gap from Thursday, and a drop below the purple rising wedge (about which I wrote more on Friday) encouraged the sellers to test the 2023 peak earlier today. Despite this deterioration, the bulls closed ranks and pushed the commodity higher, invalidating this drop. If they also manage to finish the day above this important support, we could observe a verification of the breakout above the 2023 high, which could translate into further improvement in the coming day(s).
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See you tomorrow.
Anna Radomska