Gold prices have rebounded slightly last week, trading back towards 1,400 per troy ounce after hitting a recent low of 1,338, which is still higher than April’s lows. This is a sign that the bearish sentiment may be exhausted and hence current bullish recovery shouldn’t come as a big surprise for technical traders. However, the same could be said about current bullish correction, which has been mostly kept below 1,400, and is a fair distance away from the previous support of around 1,440. This lead to the conclusion that bullish pressure may not much stronger than the bears, especially given the strong bearish backdrop.
The failure for either bulls or bears to assert themselves resulted in current price setup. With price volatility decreasing as we enter the apex of current ascending triangle, there is a good chance that we may see a short-term breakout within this week. However, before we get excited, it is unlikely that the breakout will be able to climb up all the way or do the same in the opposite direction, as strong support/resistances still remain in the form of 1,440 and 1,330 April lows as mentioned earlier. Nonetheless, it still represent a good potential move of around 50 USD on either side. Furthermore, just because there are support/resistances does not mean that the move cannot result in a continuation of bullish/bearish breakout, which means that traders who are already in the money following current short-term breakout may have the possibility of gaining further, at the risk of losing their current 50 USD short-term breakout profit that is.
On balance of things, it is difficult to say whether current setup favors bulls or bears. Generally a rising triangle has a slight statistical advantage for a breakout on the bullish side, however overall bearish pressure may put a check on this. Hence it is perhaps more prudent to wait for further development rather than punting right now. Placing pending orders based on price levels may also not be favorable as the long tail seen last week suggest that fakeouts are possible, which makes trading this shorter breakout (relatively speaking) all the more harder.
Hourly chart has its own triangle forming (not to be confused with the daily chart’s triangle). Current price level appears to be right in between the rising trendline and the 1,400 resistance. This leaves room for price to move either way but 1,385 level can be reasonably expected to provide support against such a move. With the rising trendline looking to cross 1,385 in the next few hours, if price does break 1,385, we could potentially see short-term bearish pressure that may help to accelerate price towards the Daily Chart triangle and perhaps even nudge price towards a bearish breakout scenario. Stochastic readings kind of agree with readings firmly pointing lower yet still a fair distance above the Oversold region.
Fundamentals of Gold remains the same, with demand continue to look weak as evident by the decreasing net long position under COT and the fleeing of funds from ETF Gold products. It is not difficult to understand why gold holders would give up hope on the yellow metal given that Stocks are looking stronger each day. With such sentiment, it will be hard for Gold to return to its former 2011 glory and the downtrend that has been in play since last year Sep has very little likelihood of stopping from a fundmantal perspective.