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Technical Trading: Gold Bulls Defend Overnight Test Of 2013 Low
By Kira McCaffrey Brecht of Kitco NewsMonday October 06, 2014 8:20 AM
(Kitco News) - October 6 —The battle between gold bulls and bears has moved to center stage as the yellow metal fell to its lowest level since June 2013 in overnight action, but then saw buying interest support the market at the key $1,183-$1,182 floor, basis the weekly continuation chart for gold.
The U.S. dollar index is trading slightly weaker in pre-market action Monday, which is a supportive factor to the gold market.
The gold market has been forming a large triangle pattern on the weekly chart since June 2013, although this formation has not been confirmed. But, triangles are "continuation" patterns, which implies that a breakdown under the lower triangle trendline would unleash a fresh selling wave. The triangle's largest point is roughly $247, which projects downside losses to about the $934 per ounce zone if a strong and sustained downside breakout is seen.
But, for now the bulls are fighting back.
The hourly chart for December gold futures reveals a minor type of "V" bottom, which showed that gold bugs defended the first test of this major floor.
The gold market has fallen to levels not seen since June 2013 (at $1,183.20 per the weekly continuation chart) and January 2014 (at $1,182). Both previous sell-offs to this floor invited heavy physical buying of gold, which then triggered a recovery rally off that floor.
Physical demand could emerge from both heavyweight gold buyers China and India, particularly during the current China Golden Week holiday and with India's festival of Diwali beginning in under three weeks. Gold has fallen to a level where physical buying interest was stimulated in the past, but action around this floor will be key to monitor.
In the very short term, (see figure 1, the 60-minute chart), the bulls face initial resistance at the $1,204.30 level. If the gold market were able to rebound above that zone in the near term, it would suggest the market is indeed stabilizing at least for now.
Gold price action throughout this week will be critical. If the gold bears are successful in forcing a strong and sustained downside breakout under the $1,183-1,182 floor it would confirm the bearish triangle pattern. Two consecutive weekly settlements under that zone may be used by more conservative traders in order to confirm the triangle. That action would open the door for a fresh selling wave in gold with a target under the $1,000 per ounce zone.
Gold is at a critical juncture. Trade carefully.
By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht
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