Gold traders have been particularly frustrated of late, as the yellow metal has failed to form any durable trends over the last six weeks. Instead, gold has merely consolidated in a tight $60 range on either side of the key $1,300 level since late March. While we expect prices to stay generally within that range in the near-term, seven different technical patterns suggest that the metal may have seen a near-term top at 1315 and that it could pull back toward $1,300 or $1,290 this week.
Seven Technical Signs that Gold May Have Put in a Near-Term Top at $1315
1. 78.6% Fibonacci retracement of XA (see chart) = $1318
2. 127.2% Fibonacci extension of BC = $1,315
3. AB=CD pattern off late May low = $1,314
4. 50-day MA = $1,317
5. Recent 4-hour Bearish Engulfing Candle*
6. Relative Strength Index (RSI) falling from overbought territory (>70)
7. Failure to rally despite broad-based U.S. Dollar Index weakness
To provide some color on this list, the convergence of the first three creates a quintessential bearish “Gartley 222” pattern, which projects a higher likelihood of a near-term top in the 1315-8 zone. This resistance confluence is only strengthened by the presence of the 50-day moving average at $1,317.
The other factors confirm the resistance zone near $1315 and point toward more weakness to come. Both the price action (Bearish Engulfing Candle) and an overbought/oversold oscillator (RSI) show a shift from buying to selling pressure at that key area, bolstering the bearish case. Finally, gold’s failure to rally today, despite the USD Index’s drop to a new 7-month low, indicates that near-term buying interest is extremely limited.
Looking ahead, the bearish Gartley pattern suggests that gold may drop to at least the 38.2% Fibonacci retracement of the entire ABCD pattern at $1300, and potentially all the way down to the 61.8% retracement at $1,290. At this point, only a confirmed break above $1,318 would shift the near-term bias back to the topside for the yellow metal.
*A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.