Gold futures tumbled in heavy trading last week to reach their lowest level in several weeks. With traders eyeing the sell-off as a possible buying opportunity, the start of trading in the week ahead may be an important indication of the longer term direction the market is taking. Autochartist is picking up some clues in the technical formations on the intra-day charts.
The major development last week was gold's break of key support at the $1,760 per ounce level, which triggered a sell signal on the Autochartist Key Level identifier. This proved to be a meaningful price point as momentum selling took hold and a $50 per ounce decline ensued. After achieving the forecast target, a mild short-covering bounce brought the price off the lows in Friday's session.
This bounce created a swing low where the price can now pivot for a retest of the key level support at $1760. If this plays out, it will diminish the weight of the sell-off in the overall chart pattern and suggest this was merely a corrective move in the uptrend which began from the $1,600 per ounce bottom. A move above the key level, now acting as resistance, is needed to revert to the bullish technical outlook. Traders will be watching the strength as it approaches this level for a potential upside breakout.
On the 15-minute candlestick chart, the bounce from the lows is identified as the Flag pattern illustrated here. The pattern is clearly setting up a resistance zone at the upper trend line, with the slight strength going into Friday's close leaving gold well-positioned for a retracement back to the key level. This would materialize as a breakout from the flag, generating an upside forecast in the vicinity of the $1,760 resistance.
If selling pressure resumes in the week ahead, a slide back into the flag with an eventual move to support below $1,710 would be expected as the pattern continues to develop. This would suggest additional weakness and the possibility of an eventual collapse back to the $1,600 level.
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