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Gold Retreats Within Rising Bull Channel

(Kitco News) - Gold prices are under pressure to start the week, as follow-through selling continues to weigh on the yellow metal. In the short-term, gold is approaching several technical chart support zones, which could stop the recent bleeding.

What does the daily gold chart show?

  1. A rising bull channel is seen off the July 24 low. Comex December gold futures have been climbing (and falling) within a bull channel in recent months, shown in green on Figure 1 below. The lower channel line offers support around the $1,130 per ounce level.
  2. Daily momentum has broken a rising trendline. The 14-day relative strength index (shown in blue below the price action) reveals that the momentum indicator has cracked rising trendline support. This is an out-of-box way to examine momentum trends. The momentum tool is now poised to test its early September low (shown at blue dotted line), around the 39% zone. If that gives way, the bears could generate additional downside steam.

The bears are in control of short-term trading action. If the lower bull channel line gives way, the bears will gain confidence and a quick test of the Oct. 2 low at $1,103.80 could be in order (shown at Point A).

Short-term trading insights:

  1. Will buyers begin to nibble at the lower prices? Watch to see if the lower bull channel line offers support for gold. If the gold market stabilizes around that zone it would open the door to near-term consolidation or upward price probing.
  2. The relative strength index is approaching "support" from its early September low, after the recent trendline break. Will support at the 39% area hold? If it does, it could usher in a period of stabilization for the gold market. Conversely, a breakdown below 39% would be another bearish momentum signal. ]

Multi-month outlook: Gold is still trading within a rising bull channel. If the bull channel is violated it would weaken the multi-week to multi-month outlook for the yellow metal.

Bottom line: Gold is approaching a critical support zone and action this week will be important for near-term direction ahead.

By Kira Brecht, contributing to Kitco News;
Follow her on Twitter @KiraBrecht



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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