Gold Technical Update
Gold is not benefiting from the risk aversion shown in the currency markets. In the daily chart, we can see a double top forming, although the second top was slightly higher. The base is at about 1700, or we can use the 1698, 50% retracement level. In otherwords, a break below this level shows the market in a major topping pattern, suggesting a possible reversal in the medium term against the long-term bull market in gold. Note the RSI reading still above 40. A double top breakout should also see a break in the RSI reading below 40. A couple of targets are the 1646, 61.8% retracement level which represented a slight consolidation we saw at the beginning of August.
Another scenario is that the market will be supported at 1700. At that point, the market would still look flat since August, but the bullish bias still remains. Even with a break below 1700, gold has a chance to rally as a safe haven asset during a risk averse environment. If there is a break below 1700, we would probably want to see a pullback toward 1760 to help confirm whether the market will be bearish in Q4 2011. If the market stays below 1760, gold bulls would have likely given up in the medium term, but could still be looking to buy after the dip.
The 4H chart shows gold in a sling-shot as it crosses the 4H 200 period simple moving average. The RSI has been staying below 60, and now is tagging 30 again signaling bearish momentum in the short to medium term. Let's see if the 1698-1700 support zone will hold up, and if it does not, see whether a pullback can remain below 1760 for a sign of a major reversal in the fourth quarter.
Fan Yang CMT
Chief Technical Strategist