Gold Stops Sell-off Near 4-Month Lows; Eyes on Downtrend Line

Gold printed fresh losses last week after remaining mostly stable in the first half of the month, slipping near a four-month low of 1,271 on Friday. The price, however, has been flirting with the lower Bollinger band in the past three sessions, while the Stochastics have already registered a bullish cross in oversold area below 20, both justifying today’s upside momentum in the market. Still, the line connecting the lower highs from the 1,346 peak, and a price below the Ichimoku cloud and its moving averages suggests that the trend is likely to hold on the downside.

Should the market extend recovery, the 38.2% Fibonacci of 1,283 of the long upleg from 1,180 to 1,346 could provide immediate resistance. Yet, only a decisive close above the descending line, currently near 1,307 and slightly below the 23.6% Fibonacci, would signal a trend reversal, shifting the focus towards 1,326 a key resistance this year.

Alternatively, a move southward could initially find support near the 50% Fibonacci of 1,263 before a crucial battle potentially starts between the 200-day simple moving average (SMA) (1,250) and the 61.8% Fibonacci of 1,244. A failure to hold above this area would probably bring a more aggressive sell-off towards the former 1,212 restrictive hurdle.

In the medium-term picture, the outlook seems to be switching to bearish after the drop below the 1,280 level. Traders could wait for a confirmation under the 50% Fibonacci of 1,263.

In brief, the short-term risk is skewed to the upside, while the medium-term outlook looks to be turning to bearish.

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