What can we infer from the monthly and weekly closures in gold?
Technical Picture of Gold
Before we move on to the broader picture of the yellow metal, let’s recall the technical situation from a short-term point of view.
Let’s start with the quotes from my last Quick Gold Alert:
(…) Thanks to yesterday’s drop, the price slipped slightly below the mentioned target and tested the 38.2% Fibonacci retracement (based on the entire Mar-May upward move).
(…) What are the scenarios?
If the bulls manage to protect the 38.2% Fibonacci retracement (based on the entire Mar-May upward move) and close today’s gap, the probability of a rebound from current levels will increase. In this case, the buyers will likely attack (at least) yesterday’s gap and try to close it in the coming sessions.
(…) What could happen if the buyers fail after the U.S. market open?
In this case, we’ll likely see another re-test of the above-mentioned 38.2% Fibonacci retracement or even a test of the next green support zone based on the 78.6% Fibonacci retracement and May 9 lows (around $2,311.70-$2,321).
From today’s point of view, we see that the situation developed in tune with the above scenarios in the previous week. Although the bulls pushed the commodity higher in the first half of the week, the bears didn’t give up their appetite for lower prices, which translated into a decline in the last sessions of May.
As a result, the yellow metal slipped to the above-mentioned downside target and tested the next green support zone based on the 78.6% Fibonacci retracement and May 9 lows.
Despite this deterioration, the buyers closed the ranks, which, in combination with the buy signals generated by the 4-hour indicators, caused another move to the upside. Thanks to Thursday’s increase, gold futures attacked the short-term red declining resistance line and finished the day above it (a bullish sign).
On Friday, we saw further improvement, but the bulls failed to successfully break above the 38.2% Fibonacci retracement (based on the entire May decline), which triggered a pullback, which took the price to the mentioned previously broken short-term red line (which serves now as a support).
Earlier today, the bears moved temporarily below it, but their opponents responded with a counterattack, which resulted in an invalidation of the earlier small breakdown.
This is a positive signal, which in combination with the position of the 4-hour indicators (they have space for growth) suggests that further improvement may be just around the corner.
How high could gold go?
The first upside target for the bulls will likely be resistance area based on the Friday’s peak and the mentioned 38.2% Fibonacci retracement.
However, when we take a look at the daily chart, we see that slightly above it, the bulls have the next two important resistances: the red gap ($2,383-$2392.90) from May 23 and the upper border of the orange consolidation.
Taking the above into account, it seems that further improvement will be more likely and reliable only if we see a successful breakout above them. Until this time, very short-term moves in both directions (in the space of the consolidation) should not surprise us.
Having said that, let’s check what adversities await market participants in a broader perspective.
Let’s zoom in on the chart and examine the weekly chart.
The first thing that catches the eye on the chart aboveis the bearish engulfing candlestick formation, which reinforced the resistance zone created by the recent peaks. It is also worth noting that the red candle materialized on a significant volume, which underlines the involvement of the sellers in the decline.
On top of that, last week’s upswing was tiny (comparing the volumes of both candles), which doesn’t bode well for the bulls – especially when we factor in a prolonged upper shadow, which translated into a shooting star pattern (a pro-bearish candle).
Additionally, the RSI, the CCI, and the Stochastic Oscillator generated sell signals, suggesting that the sellers next move may be just around the corner.
What can we learn from the long-term chart?
From this perspective, we see that another white candle with a prolonged upper shadow appeared on the chart. In other words, the bears gained another ally – one more shooting star, which could lure even more bears to the trading floor in the coming month.
However, before we see such price action, the first challenge that market participants currently face is to effectively leave the consolidation zone (marked with orange on the daily chart). In my opinion, only the outcome of this battle can indicate more clearly and reliably which side of the market has more strength to push the price in its direction.
Summing up, although gold futures moved temporary under the previously broken short-term red declining line, the buyers came back and invalidated this small breakdown, which suggests that further improvement may be just around the corner. Nevertheless, as long as gold futures are still trading inside the consolidation a bigger move is not likely to be seen.
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See you tomorrow.
Anna Radomska