Gold Retraces After Breakout; Testing Short-term Trendline

By Roger Baettig | August 30 2012 5:51 AM

Gold Technical Update

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Previous: Gold Breaks Descending Triangle Resistance; 1700 in Sight (8/23)

XAU/USD 4H Chart 8:48PM EDT 8/29/2012 Gold

In the previous update, I noted that the break of a key declining trendline opens up the 1700 handle. Not so fast. We have the Jackson Hole symposium risk event tomorrow (8/30) through Saturday (9/1). That means the bullish intent is held back, and we can probably expect some wacky price action the next couple of days, or if the market is patient, some very light trading.

The 4H chart shows gold resolving some overbought conditions. 1) RSI divergence. 2) Divergence relative to upper Bollinger Band, which is here 3 std deviations from the 200-period SMA. Regression can be expected to target mean price action, represented here by the 200-4H SMA, which is near 1615. However, given the bullish nature of the breakout (clue: RSI in daily time-frame broke from under 60 to tag 70), we should probably have a conservative bearish outlook for gold, especially with the Jackson Hole risk event looming.

If the market clears 1655, it is probably going to break below a short-term rising trendline going back to August 15m seen more closely in the daily chart. This opens up previous resistance pivots near 1640.60 and then more aggressively, 1625.10. We should probably not expect a throwback lower than 1625.

XAU/USD Daily Chart 8:49AM EDT 8/29/2012 Gold

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