Gold prices reacted predictably yesterday, pushing up towards 1,395 resistance. However, the resistance ultimately held with prices moving down quickly after, giving us a nice Stochastic bearish cycle signal which the technical bears took without hesitation. The resulting bearish move broke the 1,375 support, with prices hitting a low of 1,365. Since then price has been trading sideways between 1,365 and 1,375 without any strong attempts to break either level.
It is possible that the decline was fueled by QE Tapering fears which was fueled by the stronger than expected US employment data in the form of lower than expected Initial Jobless Claims and Continuing Claims. This decline was evident via Stocks and Yields alike, providing evidence to this assertion. However, it was noted on Tuesday that prices didn't react to the ISM Manufacturing data much, and hence there is a question mark hanging whether Gold prices will be sensitive to the eventual FOMC taper decision and today's NFP numbers. Then again, we did not have a clean assessment on Tuesday as the war gong was sounding then, and yesterday's price reaction may be a better indication of true sensitivity to Taper fears. Hence traders may wish to look at today's reaction to NFP figures to assess if volatility can be expected 2 weeks later during the FOMC announcement.
Currently, we have Stochastic showing a peak right now, but we've already established yesterday that this bearish signal must be taken with a pinch of salt as previous peaks around this level has failed, the latest one being yesterday. A better signal may come if price move towards 1,375 but fail to break the resistance level, resulting in a move back lower concurrent with a Stoch peak forming within the Overbought region. That would have more bearish conviction and we could even see a push breaking 1,365. Bullish push will open up 1,385 as target, but given that price will be likely within Overbought region, it may be hard to imagine price pushing higher towards 1,400 once again without any fundamental drivers.
Weekly Chart shows a perfect Evening Star pattern, with current price lower than the opening levels of the candle left to the the "shooting star". If we end this week's trading around current level or perhaps even lower, look out for next week's Monday early session and see if bearish momentum picks up as well. If there is indeed acceleration downwards, the bearish reversal pattern will be complete and we could see prices heading towards Channel Top and potentially form fresh lows for 2013.
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