Gold Technical Update
Gold rebounded from 1522.60 and is now trading at the 61.8% retracement of the latest swing from 1641.50 to 1522.60, at 1596. This also brought the RSI reading to 60. The market is now challenging the bearish momentum, and if it pushes the RSI above 60, we might be seeing a more significant correction than just the late December corrective rally. Price action also need to break above 1600 as well as the projected channel resistance seen in the 4H chart to signal a correction rally that can reach toward 1641.50, or near 1660, where the 200 4H SMA reside.
The daily chart shows a bullish divergence with the RSI after the market cracked the Sept. 2011 low. At the moment, the maximum bullish outlook should probably be in the short-term, to 1668.54, 38.2% retracement, and previous support. Then the projected triangle resistance should be the next level to contain the rally within context of a bearish market, or at least a corrective market with bearish bias.
When the market returns to the bearish cycle, the downside target below the 1522.60 pivot are near 1477 and 1432.50. These are pivots established earlier in the year above the 2011 low near 1307.30.
Looking again at the daily chart, it should be noted that this bearish outlook for January 2012 would be invalid if the market breaks above the projected triangle resistance. This would probably be seen soon after price breaking above 1700.
Fan Yang CMT is the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.