Feb 20 2019

Gold – nearing long term resistance

The research article published by Myforexeye on Feb 1, 2019 suggested a rise in the gold prices to $1345 – $ 1350. The yellow metal made a fresh 10-month high of $1346.73 today – target met. A lot of factors have contributed to this gradual rise – diminishing hopes of future US Fed rate hikes, increasing fears of a global economic growth slowdown, persisting uncertainty around U.S.-China trade tensions, etc. Global investors have become increasingly risk averse, making gold their preferred choice of investment.

Analyzing the technical chart (for a longer period in history), one can notice the formation of a Rounding bottom pattern (notice the green eclipse on the daily chart). Historically, gold has faced major resistance around 1350 – 1370 (check the horizontal lines – blue and pink – on the weekly chart) and it has now reached that range.

A first glance at the indicators (on the daily chart) suggests that the momentum indicators are nearing their overbought territories. 14-day RSI (Relative Strength Index) is above the 80 mark; Slow Stochastics are reaching the 90 figure and the (5,35,5) MACD is nearing its previous peak. There are visible divergences on the RSI, MACD and the Slow Stochastics (observe the downward sloping yellow lines on the indicator charts) – gold prices are forming higher peaks while the indicators are showing lower highs.

My sense calls for a short corrective action in the yellow metal. Even though, we feel bullish on the longer term horizon, recent price volatility warrants a cool off. First target is towards 1310-1320 (trendline support – rising purple line). Second target is the region around 1270-80. If gold closes above 1365, we will stop the above judgment.