Gold – Should bears be worried?

Just how bearish is gold right now?

Gold remains vulnerable at the moment, despite making small gains today.

The fact that the dollar continues to look strong is a significant headwind for the yellow metal, with the risk environment on the back of various central banks settling nerves also dragging on the price.

Gold Daily Chart

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We broke below $1,280 last week which was a technically significant breakout and drew attention to $1,260 below it where a prior area of support and resistance crosses with the 200-day simple moving average

The bullish case for gold is not dead though, despite all of the above. For one, we’ve hardly seen a boost in downside momentum since the break below $1,280 and we’ve seen a second test of this from below today. Each new low is quickly bought into which is often a bad sign.

What’s more, it seems that dollar gains are not weighing too heavily on gold – particularly today – while any weakness is getting quite the response to the upside. This could be a worrying sign given the correlation between the two. Perhaps an early red flag for the bears.

All considered, the downtrend may be weakening, right now, but as long as we remain below $1,280, the key level in gold remains $1,260, a break of which may deliver the momentum is lacked over the last week.

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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