Market technicians unanimously agree that the 200-day moving average is the line in the sand when it comes to technically determining if gold (or any other stock or commodity) is in a long-term bullish or bearish trend. While it is the longest time cycle typically used in moving averages it is been the accepted “go-to “study to determine the current long-term trend of a market.
The chart above is a daily Japanese candlestick chart of the continuous contract of gold futures. It clearly shows that gold pricing remained below its 200-day moving average since it broke below this key long-term technical indicator on June 17. Gold pricing would remain below that average until it first tested and closed above it on Thursday, December 1. The length of time gold remained above this key long-term technical indicator was extremely short lasting only two days, last Friday and Monday.
On Monday gold futures broke below its 200-day simple moving average, after opening at $1810. Gold traded to an intraday high of $1823 before selling off sharply by first breaking below $1800 and finally settling on the first day of the week at $1781. Gold futures prices would spend the rest of the week clawing its way back up. It would take until Friday to accomplish that task. On Tuesday gold traded fractionally higher trade with a higher low than the low on Monday. Wednesday's trading action resulted in a respectable double-digit gain which was followed by yesterday’s price consolidation and today’s gain of $7.10.
As of 4:35 PM EST, gold futures basis the most active February 2023 contract is currently fixed at $1808.80 after factoring in today’s gain of 0.40%. Today gold opened in New York at $1801.90 and traded to a high of $1819. Gold’s current pricing puts it well above the simple 200-day moving average which is currently fixed at $1799.60.
Another key element in gold pricing this week is that this week’s high of $1822 creates a double top as it matches the intra- week high that occurred during the week of August 8. The top that occurred during the week of August 8 and this week created a chart pattern that can be best labeled as a rounding bottom.
According to Investopedia, “A rounding bottom is a chart pattern used in technical analysis and is identified by a series of price movements that graphically form the shape of a "U". Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements. This pattern's time frame can vary from several weeks to several months and is deemed by many traders as a rare occurrence.”
In this case, it loosely fits the criteria to create this pattern because of the highs that occurred in the middle of the bottom.
News, not technical studies will guide next week’s price direction
Fundamental events will have the largest influence on determining the direction of gold next week. The key elements to look at next week will be the latest numbers on inflation vis-à-vis the CPI report that will be published on Tuesday. This will be followed by the most important economic event, the conclusion of the last FOMC meeting in 2022 on Wednesday.
So why look at technical studies? Technical studies will be able to guide market participants in identifying key levels of support and resistance to help guide their investment decisions once the two major fundamental events conclude.
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Wishing you as always good trading,
