Gold has looked quite bearish for some time now and today it has broken through another support – $1,142.73, 17 March lows – having failed at the first two times of asking.
The next key support level lies around $1,131.50, a break of which would see Gold trading at its lowest level since 19 April 2010. The move following the break of the previous level has been quite aggressive and already we’re seeing the new support being tested.
If this holds on the first attempt, the first clear resistance will be $1,142.17, previous support. Quite often old support levels turn into resistance and vice versa. A failure to break back through these levels is seen as confirmation of the initial break and in this case would be very bearish.
There’s no guarantee that we’ll see this though as there appears to be a lot of momentum behind this move. A sign that the current support could hold could come from the MACD and stochastic. If these display a divergence with price action, it suggests momentum has been lost.
Paired with a reversal on the charts – such as bullish engulfing pattern or morning star formation, or even something weaker if you prefer an earlier signal such as a hammer candle – this can be seen as bullish in the short term. This could even be on the 1-hour chart or even 30-minute, although the lower the time frame, the less reliable given that the bulk of the analysis for the move comes from 4-hour and daily charts.
The bounce we’ve seen already suggests this level is quite well supported.