(Kitco News) – Gold traders face a crossroad this week as the narrowing channel between support and resistance forces the yellow metal’s price into either a breakout or a breakdown, according to David Scutt, market analyst at City Index.
In a technical analysis published Monday, Scutt wrote that while the signals are marginally bullish on balance, the upside break is by no means assured.
“After an incredibly strong start to the year, gold has gone comparatively nowhere in recent months,” he said. “As seen in the daily chart below, the price continues to attract buyers on dips towards uptrend support running from the low set on February 28. We’ve now seen six bounces from this level, including one on Thursday. However, bears have been making their presence felt, selling into rallies above $3360 on multiple occasions, including several times last week.
Scutt said that the net result of these two opposing forces has been a gradually narrowing trading range.
“That may be resolved later this week as the two levels converge, pointing to the potential for a decent directional move depending on which way the price breaks—if that eventuates,” he said. “Sitting in an ascending triangle pattern, the setup suggests a topside break may be more likely than a breach of uptrend support. From a momentum perspective, RSI (14) and MACD also favour a mildly bullish bias, trending slowly higher into positive territory. However, neither the price action nor momentum picture is definitive, suggesting traders should keep an open mind as to what happens next.”
Scutt said that if the spot price manages to close above $3360 resistance, “the July 16 high of $3377 looms as the first test for bulls,” and a successful move above that level puts $3400 on the radar. “Beyond that, the June 16 peak of $3451.30 is the last major level before a potential retest of the record highs at $3500.”
“On the downside, the confluence of the 50-day moving average and uptrend support looms as a tough test for bears, creating a significant technical hurdle based on recent price action,” he warned. “If the price breaks and closes beneath this zone, the July 17 low around $3310 and the July 9 low at $3283 are levels of note, before a more pronounced support zone at $3250.”
Gold prices have already managed to breach $3,400 per ounce on Monday afternoon, but the bears have successfully pushed the yellow metal back below this key resistance level. Spot gold last traded at $3,394.98 for a gain of 1.34% on the daily chart.
