Gold Under Close-Up

Another supportive gap, another test of the barrier of $2,200, and… another invalidation. What’s next?

Technical Picture of Gold

Gold Under Close-Up - Image 1

From this perspective, we see that yesterday’s U.S. session started with a green supportive gap that triggered further improvement and a climb above the barrier of $2,200. Thanks to yesterday’s price action gold hit an intraday high of $2, 222.60, approaching the previous peak.

Despite this improvement, the bulls didn’t manage to hold gained levels, which translated into another move to the downside and a daily closure below the mentioned barrier of $2,200.

In this way, gold invalidated the earlier breakout for the second time in a row, which in combination with the current position of the daily indicators suggests that further deterioration and a test of the lower border of yesterday’s gap ($2,176.40-$2,195) is likely (in the case of the gold continuous contract).

What does the USD Index say about this?

Gold Under Close-Up - Image 2

Looking at the daily chart, we see that the overall situation in the short-term hasn’t changed much as the USD Index remains inside the orange consolidation.

However, when we zoom in on the picture and focus on the 4-hour chart, we can see an important change…

Gold Under Close-Up - Image 3

From this perspective, we see that the situation developed in tune with yesterday’s assumptions and the USD Index invalidated the earlier breakdown under the lower line of the consolidation, which together with the shallow correction of the previous upward move suggests that further improvement could be just around the corner and a re-test of the recent peak can’t be ruled out.

Nevertheless, please keep in mind that the current position of the indicators doesn’t bode well for the bulls, suggesting that even if they manage to push the index higher, the space for gains (in the very short term) could be limited.

What does it mean for the yellow metal?

In my opinion, higher values of the USD Index will likely translate into further deterioration in gold, which is in line with the above-mentioned scenario.

Summing up, another green supportive gap from yesterday encouraged the bulls to climb above the barrier of $2,200. Despite this improvement gold closed the day under this key line, which together with the current picture that emerges from the 4-hour chart suggest that further deterioration could be just around the corner.

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See you tomorrow.

Anna Radomska