Gold – Strong Rejection at Big Resistance Level

Another strong start to the session for Gold saw it rally towards $1,168.50 this morning, slightly beyond the price projection highlighted on Wednesday (Gold – Bullish Flag Broken Ahead of FOMC Minutes).

The yellow metal ran into resistance just above here though, with the 61.8 fib level – 18 May highs to 20 July lows – and descending trend line – 22 January highs – proving to be a significant barrier.

Gold Daily

The retracement off this level already, suggests we may have entered a corrective phase of the more than 5% rally from Tuesday’s lows.

We saw a very nice shooting star reversal candle on the hourly chart earlier on today, at that known resistance level and against the backdrop of falling momentum, or divergence with the MACD histogram and stochsatic. This was an early sign of what was to come. The sell-off followed and led to a bearish consolidation phase, which now appears to have been broken.

Gold 1hr

While the daily candle is still far from complete, the early signs suggests a bearish shooting star could also form here. Of course, only the completed candle counts here as this could easily reverse between now and the close.

If it does close as a shooting star, it would suggest a correction at the very least could follow. At this stage, the 50 and 61.8 fib levels – 20 July lows to today’s highs – could off strong insight into the extent of the bearishness of the market.

The longer term trend remains bearish but these levels could offer early insight into whether the recent rally is the beginning of a larger longer term correction.

It’s worth noting that the fundamentals – low inflation, potential Fed rate hike and stronger dollar – are supportive of the longer term bearish bias.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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