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).
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.
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