Gold Technical Updates

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Gold (XAU/USD)

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Gold went from record high to having a record single day loss on Wednesday. Thursday, having slid more than $200 it is at a critical support on it's third day of decline. Let's take a look at some technical conditions of XAU/USD after such a tremendous plunge.

  • When gold reached the 1911.60 record high, it did it in a very sharp manner, in a throw-over above a rising channel.
  • Now it is crashing in a even more aggressive manner. It has crashed through the 1800 psych support without batting an eye, and is now hovering above the 1700 psych support, this time finding some reaction.
  • There is a pivot near 1720 as well.
  • As far as momentum, the RSI is below 30, first time since a persistent rally started in July. Against a bullish trend, this is an oversold market.
  • Also note that the decline is in it's 3rd swing down, or 5th wave. It looks like an impulse wave, which means we are likely to see further corrective price action, but we might be also nearing the end of the first leg, or leg A of say an ABC correction.
  • If the market looks for wave equality for the 5th wave with the 1st wave, we are projected to 1682.80, which is another pivot and the 200SMA. Therefore, if the market breaks below 1700 in the US session, it should find support near 1680 ahead of the Jackson Hole meeting.

3 Black Crows:

gold08252011d

  • When the market slides sharply for 3 consecutive days, it is known as the 3 black crow in Japanese candlestick analysis, and reflects a reversal. The daily chart shows that the third day may already be lightening up, but the dynamic is still valid.
  • Last time we had 3 black crows was in March 2008. This started a bearish market that went into November 2008 and wiped out all the gains since September of 2007.
  • Thursday, we have not even pared the losses since July of this year. Although history may not repeat exactly, there are some similarities here, when comparing the rally ahead of the 3 black crows.
  • Therefore, we might lighten up for now, but as the structure and candlestick analysis suggest, TIME and/or PRICE should continue to extend in the current correction as entering Q4 2011.

Gold

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Fan Yang CMT
Chief Technical Strategist
FXTimes