Gold has been in a downtrend after reversing from the 1357.47 high on September 8.
The market became overbought at this more than 1-year high, both on the 4-hour and daily charts. RSI rose above 70 in both time frames.
Focusing on the 4-hour chart, gold is entering a consolidation phase with prices capped at a key resistance of 1300. The technicals are painting a bearish picture, suggesting that risk is to the downside. The 20 and 50-period moving averages are negatively aligned and pointing down, while momentum indicators such as RSI and MACD are in bearish territory. But both are flat now and showing the likelihood of more range trading in the near term.
A move to the downside would target 1280 where support is expected at this 50% Fibonacci retracement of the uptrend from 1204.79 to 1357.47 (July 10 – September 8). An extension lower would shift the current neutral bias and the pause in the recent downtrend would resume to a stronger bearish bias. Further weakness below the 61.8% Fibonacci (1263.02) would target the August 8 low of 1251.49.
A sustained break above the key 1300 resistance level would help ease immediate downside pressure. A push higher from 1300 would open the way to 1321.27 and 1342.68 before seeing a re-test of 1357.47.
For now, the near-term risk is to the downside based on the technical indicators. Only a move back into the 1340 area would indicate the bearish phase has ended.
by Selena Nicholas, XM Investment Research Desk