Gold moved above the barrier of $2,200, but then closed the day below it. What’s next?
Technical Picture of Gold
Let’s start today’s analysis by quoting the last article on gold:
(…) the breakout above the red declining trend channel (marked with dashed lines) in mid-Oct. 2023 took gold slightly above the psychologically important barrier of 2,000.
After a shallow correction (it reached slightly below the 38.2% Fibonacci retracement based on the Oct. upward move), the commodity moved north again, reaching a new peak (2,152.30) at the beginning of Dec. 2023.
At this point it is worth noting that the size of the upward move was similar (only $21 bigger) to the mentioned rally that we could observe in Oct. (I marked both cases with purple rectangles). This fact, in combination with the above-mentioned long-term key resistance line triggered a correction (…) that took the price of gold to Dec. low of 1,987.90.
If history repeats itself again and the next upward move is similar to the previous ones (marked with purple rectangles), its range may reach (at least) to 2,174-2,195.
From today’s point of view, we see that the situation developed in accordance with the pro-bullish scenario and the bulls reached the mentioned target during Friday’s session. This positive development together with the breakout above the blue resistance line based on the previous peaks encouraged the bulls to test the barrier of $2,200.
As you see, this attack was successful and buyers hit a fresh high of $2,203.
But was it as spectacular a success as could be expected?
Although the bulls managed to break above the barrier of $2,200, they didn’t manage to hold gained levels, which translated into a pullback that took the price to $2,185.50. In this way, the commodity invalidated the earlier breakout, leaving on the chart a white candle with a prolonged upper shadow.
Despite this deterioration, gold finished the week above the previously broken blue resistance line, which suggests that as long as it remain in the cards (as a reminder, it serves now as a support) a bigger move to the downside is doubtful – especially when we factor in the last weeks’ volume that accompanied the upward move.
Are there any technical factors that could be encouraging for bears at these levels (apart from the negative divergences and the situation of daily indicators described in the last article on gold)?
The first (and most important) is the already mentioned barrier of $2,200.
However, when we take a closer look at the daily chart below, we can see a combination of resistances that could be tempting for the sellers.
From this perspective, we see that the recent upward move took gold to the 1.272% Fibonacci extension based on the entire decline from the first half of the month (marked with red) and the 200% Fibonacci extension based on the decline from late Dec. to mid-Feb. (marked with blue), which could pause further rally – especially when we factor in the relationship between gold and the U.S. dollar.
Summing up, gold hit a fresh high of $2,203 on Friday, but then reversed and declined, invalidating the earlier breakout above the barrier of $2,200. At the same time, the U.S. dollar reached the important support area, which suggest that reversal could be just around the corner.
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See you tomorrow.
Anna Radomska