Gold – A textbook bearish breakout?

Or can gold build on its rally?

Gold fell into bearish territory last week but since then, it appears to have found some support. Was it a false breakout or will the downtrend gather pace?

I see little reason to think that we’re seeing a resurgence in gold currently. The rebound coincided with a drop in the dollar after the US jobs report, which may have provided a convenient profit taking opportunity.

But the break below the 200/233-day SMA band in gold coincided with a neckline inverse head and shoulders break in the US dollar index . We may have seen a pullback in both but, equally, they are still in tact.

In gold , we’re now seeing a test of both the 200/233 and 55/89 SMA bands, which coincides with some key 2021 fib levels. Unless we see these fall, gold continues to look bearish .

We’ve already seen pushback at $1,850, the upper level of the 200/233 band and the 38.2 fib. A move above here would concern me a little but the 50 fib would then become critical. The upper part of the 55/89 SMA band and the peaks of the two recent rallies.

A failure here and the outlook starts to look very different, with the 61.8 fib and $1,900 the final hope but this may be asking a lot. Big levels will have fallen prior to this, both in gold and probably the dollar index .

A rotation off the 38.2 or 50 fibs though and this is looking like a textbook bearish breakout.

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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.