Earlier this month, we highlighted a developing symmetrical triangle pattern on gold (COMEX:GCN14) and forecasted that it could lead to a tradable breakout last week. While our expected timeline was a bit ahead of schedule, it appears that the long-awaited breakout is finally in progress.
So far today, gold has plummeted nearly $20 to test its 4-week low at $1275, breaking definitively below the 6-week symmetrical triangle pattern. Beyond the breakdown in price, two other technical factors suggest that gold could continue to drop from here. First, the commodity is currently showing a Bearish Marubozu Candle* on the daily chart; while the day is far from complete as we go to press, a close at current market levels or lower would confirm the formation and foreshadow further selling pressure as we move through the week. In addition, the relative strength index (RSI) indicator’s breakdown from its corresponding symmetrical triangle pattern corroborates the move in price and points lower moving forward.
Surprisingly, this technical breakdown has taken place despite a typically gold-bullish fundamental development: escalating violence in Ukraine. Earlier today, a skirmish for control of the Donetsk airport in eastern Ukraine left at least 40 dead and 30 injured in the deadliest clash to date in the city. Generally, escalating geopolitical violence lends a “safe haven” bid to gold. The yellow metal’s failure to rally despite the ostensibly strong fundamental storyline is a telling sign that more weakness may be on the horizon.
In the near term, gold bears may look to press prices down to the 3-month low at $1268, followed by the 61.8% Fibonacci retracement at $1262. If those barriers are broken, gold may make a run for the 78.6% Fibonacci retracement at $1227, which also approximates the measured move target of the symmetrical triangle pattern at $1220. Meanwhile, only a recovery back above the 50-day moving average (currently at $1300) would erase the short-term bearish bias in our view.
* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.