Gold pulled back further from the recent record high of 2,532 on Tuesday to reach a low of 2,473 before support was seen. It retains a bullish outlook as it remains above the three-week low of 2,471 and above the top boundary line of a symmetrical triangle pattern. The day’s decline fell below potential support of the 20-Day MA at 2,484. But it was quickly recaptured, and gold remains above the 20-Day at the time of this writing.
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Three-week Low is Key Support at 2,471
The three-week low of 2,471 can be used as a proxy for the top triangle line. Along with the 20-Day MA, the top triangle line marks key near-term support for gold. Since the breakout of the triangle into new record highs on August 16 gold has trended sideways in a relatively tight consolidation range from 2,532 to 2,471.
A decisive breakout through one of those price levels may define the next direction, a continuation of the bull trend or a deeper pullback first. A decline below the low end of the range could be followed by a deeper correction into the range of the triangle. Keep in mind that the top line of the pattern should be watched in conjunction with the price level.
Bullish Above 20-Day Moving Average
Since the recent bull breakout both the 20-Day and 50-Day MAs have trended higher, and they remain key indicators for support of the rising trend. Further, there is an internal uptrend line that can also be watched for additional indications if gold falls into the price range of the triangle. There is also a prior swing high of 2,450 to watch. That price level was clear resistance in mid-July and now possibly support. A little lower is a prior weekly low support level at 2,424.
Shallow Pullback or Quick Recovery Can be Bullish
The degree of retracement provides information about demand. What we’ve been seeing recently is demand and supply being relatively equal, which leads to a tight consolidation pattern. When a market is relatively stable with no momentum and low volatility, there is always a chance for a shakeout before a sustained move occurs. Price may initially move in one direction, possibly down in this case, to be followed relatively quickly by a bullish reversal and breakout through the highs. Something similar could be seen in gold if weakness begins to dominate with a drop through 2.471.
Source: FXempire
