Gold – Evening Star Forming as Resistance Holds

Golds rally on Thursday on the back of a weaker dollar looked like it could be enough to take it through the double bottom neckline, which could have projected it towards $1,226.50, as noted last week (Gold – Double Bottom Forms on Dollar Weakness).

Gold daily

A failure to significantly break through the neckline though, a level which coincided with a recent area of support and resistance, was followed by a day of indecision and a very bearish looking session today.

Assuming we don’t see a strong recovery in the yellow metal, with it closing back above $1,993.71, the resulting formation will be an evening star, a strong bearish setup. The fact that it has formed on a resistance level is another strong signal.

If we can see a break below the bottom of the flag now, it would strongly suggest the bullish resistance that drove the rally on Wednesday and Thursday has been severely weakened.

If this happens, based on how it’s traded in the past, it may run into strong support in the $1,162-1,170 region. Below here, $1,131.50-1,142.75 may offer further significant support having done so on each of the three times it’s been tested recently. A break below here would put Gold at its lowest level since April 2010.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.