Gold continued its downward slide to complete the breakout pattern identified in last week's update, touching of the $1,636 support level and then bouncing higher. The price action of the sell-off from $1,800 per ounce largely fell into another pattern which may be nearing completion as well. This more recent formation to watch is the falling wedge chart pattern identified by Autochartist on the 240-minute time interval and illustrated here.
Gold traders have become increasingly reliant on chart analysis and technical indicators to determine the near term direction, as the market is now inside of a very broad trading range between $1,550 and the 2011 highs near $1,900 per ounce. As the market seeks out its overall long term direction, it is likely to continue forming shorter term patterns which can be traded accordingly.
The current falling wedge is a solid example of these shorter term patterns within long term ranges. It measures 9 bars in the initial trend category, and currently shows 6 bars in overall quality. Though significant downside potential remains as the angle of the falling wedge declines, there also a propensity for upside breakouts to occur long before the price reaches the apex, Autochartist will continue to update this pattern for potential direction shift now that the downside target has been reached.
Resumed selling in the week ahead may extend the slide towards the trend line support drawn at $1,620 per ounce. A breach of this support would be exceedingly bearish, suggesting another leg down may be in the works. It appears more likely a retest of the resistance trend line near $1,670 per ounce as the bounce continues is more likely. However, buying strength above that level will be needed to complete this pattern and generate a higher projected price target. Such a move would set gold up for a retest of $1,800 and confirm the $1,636 low as a key support level.
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