Gold – Bearish confirmation?

Can it recover after Friday’s tumble?

Gold plummeted on Friday as the dollar soared and US yields rose, particularly at the short end of the curve.

The dollar has pared some of those gains at the start of this week which has allowed the yellow metal to recoup some of its losses. But is the damage already done? Is golds dream of recapturing and holding onto $1,800 dashed?

It’s not looking good for gold . Friday’s plunge saw it smash through the lower end of the rising channel that had briefly guided it above $1,800 early last week. After running into support around $1,770 – around the 200/233-period SMA band on the 4-hour chart – it’s recovered to test the channel from below.

The bottom of the channel falls around the 50 and 61.8 fib level, so a rebound off here could not only be a correction signal but also a bearish confirmation of the initial breakout. That could put downward pressure on gold in the near term.

The next test is Friday’s lows, a break of which would pierce the 200/233 SMA band mentioned earlier and could result in further declines. Of course, there’s plenty of support below here, gold has been quite choppy in recent months after all. The next big test below is $1,740-1,750.

But the way markets are trading at the moment, I wouldn’t be surprised to see the choppiness of recent months continue for a little longer.

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Craig Erlam

Craig Erlam

Former 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.