Gold backed off on Friday having found resistance around 2,710. That price level is just below the key resistance area represented by the 20-Day MA, currently at 2,719. Notice that the 20-Day line has converged with the uptrend line and that they each mark a similar price area, more so than before Wednesday’s sharp decline.
Yesterday, support was clearly seen at a low of 2,643, thereby completing a successful test of both the 50-Day MA and 78.6% Fibonacci retracement. Although gold is down for the day, today’s narrow range day is contained in the top half of Thursday’s price range, reflecting minor short-term strength as the pullback today could have been more significant.
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Range Bound Until Moving Average Broken
This week’s price action leaves the price of gold contained between resistance around the 20-Day MA at 2,719, and support at the 50-Day MA at 2,643. This may lead to further consolidation between the two moving averages or a move through one of the price levels.
Notice that the 50-Day line accelerated its angle of ascent around early-October. It began to rise away from the internal trendline, which is also a lower parallel channel line. That behavior is consistent with a rise in demand and improving bullish momentum. Yesterday, was the first test of support at the 50-Day MA following the bullish reversal from the line on August 5.
Monthly Support at 2,602
The swing low at 2,602, which is also the bottom of a bull flag pattern, makes up the trend structure of higher swing lows. Therefore, a drop below it will show a change in that price structure and increase the potential for a continuation lower. Importantly, the 2,602-price low was also support for the month of October.
Strong Trend of Higher Monthly Lows
Since February, gold has progressed for nine months with a series of higher monthly lows and higher highs, other than June, which was an inside month. November is also shaping up as a possible inside month pattern. It looks like there is a good chance that gold may complete the month in a similar position. What this means is that the pattern of higher monthly lows defines strength of the uptrend and that a drop below a monthly low will be a clear change in the pattern. Once that happens the potential for a deeper retracement increases.
Source: Fxempire