Gold Technicals – Supported above 1,240

Gold prices has been mildly depressed yesterday, mostly due to the strengthening of USD due to stronger US Stock prices. However, price is still currently holding strong between 1,240 - 1,260 consolidation zone, and being supported by the rising trendline that represents the recovery efforts since last Friday's low. There are good fundamenal reasons why gold the recovery happened, which would help to strengthen current support levels which happens to be the confluence with the floor back on 4th July.

Hourly Chart

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Stochastic indicator is suggesting that a move higher may be possible, with a Stoch/Signal cross pointing higher. Some may argue that this does not constitute a proper bull cycle signal, and they may be right, as Stoch lines did not manage to hit Oversold regions before turning around. However, considering that the previous bear cycle wasn't "proper" either - with stoch peak forming around 50.0 rather than beyond 80.0, giving current bull signal some slack isn't fully unreasonable.

Weekly Chart

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A rally scenario is also supported from a technical perspective on the weekly chart. Price is currently sitting on a steeper descending Channel after breaking the original descending channel back in April. If a rebound is confirmed, 1,330 thereabout will be opened up as a viable bullish target. Stochastic readings are in favor of an imminent bullish cycle, while price looks likely to form a Morning Star bullish reversal pattern, which may result in stronger bullish rally next week should price close above the 50% point of the candle body 2 weeks ago.

With Chinese data looking weak today, Gold bulls would be hoping that the rot continue, preferably at an even faster rate. Should that happen, then there lies the chance that a global financial meltdown may happen again, and perhaps being even more devastating considering that Asian markets were mostly immune to the financial crisis of 07/08. If China economy collapse, which in turn pull down local banks, it is unlikely that other Asian economies/banks can be immune. On the Europe and US front, it is also unlikely that the financial sector will be able to come out unscathed as most banks are still under high risks and remains under capitalized. Should there be a return of crisis, Gold demand may come back with a vengeance as Central Banks would have ran out of conventional solutions to stimulate the market.

Will this happen? Possibly. Is it likely to happen? Perhaps if nothing is done to nip the problem in the bud. And even so, it's not going to happen today or tomorrow. Hence traders who would wish to bet on a catastrophic scenario may wish to instead stay focus on short-term technicals and sentiment for now. What this means is that price may indeed pullback up, but do not hold on to your horses and believe that price will rally up towards 1,900 in a heartbeat.

More Links:
GBP/USD – Settles Around Three Year Low at 1.4850
AUD/USD – Rallies to One Week High at 0.92
EUR/USD – Settles at Three Month Low Below Key 1.28 Level

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu