If this hasn’t been made clear enough previously, it should and will be mentioned again – Gold is currently in a strong bearish momentum.
How do we know?
Prices have been pushing steadily lower since the start of last week, and the pace of bearish momentum has been constant, implying steady sell-off which tends to be more sustainable compared to a sharp decline. Not only that, declines were seen on Friday and yesterday despite “risk off” sentiment seen in US stocks suggest that current bearish momentum is stronger than safe haven flows. What is perhaps even more impressive is the fact that some slight escalation of armed conflict in Crimea was also reported on Sunday and Monday, and gold prices remained unmoved even though prices were trading higher 2-3 weeks ago due to the fear of the Russia/Ukraine dispute over Crimea.
All these suggest that the bullish potential for current recovery/rebound may be weak even though there are strong technical supports – Stochastic indicator is showing a bullish cycle signal right now, prices appear to have rebounded off Channel Top and is entering into the small descending Channel that was in play which should open up the possibility of prices tagging the aforementioned Channel Top. However, with 1,315 resistance just overhead, and coupled with the fact that Stochastic curve has its own “resistance” to content with, it is likely that prices may simply trade flat at best and be pushed lower eventually.
Daily Chart agrees with the bearish outlook as prices have now broken below the rising Channel and the key 1,315 level, severely impairing bullish momentum and opens up the possibility of a move towards 1,270+ which is the next significant support. Stochastic levels staying within the Oversold region certainly negates some of the bearish pressure but it is not a deal breaker as counter-trend signals from Stochastic tends to be unreliable when strong trends are moving. Nonetheless, a retest of 1,315 or maybe even Channel Bottom is possible (and may even be preferred) as that would allow bears to have some rest and Stochastic readings to move higher which will prime prices for a stronger bearish follow-through eventually.