Gold prices have pulled back from the high reached on 22 April and, more importantly, are nearing a break from the recent period of consolidation. Gold is forming a descending triangle, which could provide clues about the direction prices will take.
Typically, a descending triangle is considered a bearish continuation pattern. In this instance, gold has been drifting lower along a downtrend formed intraday on 22 April. Gold is approaching this downtrend line again, having failed to break above it on two previous attempts. A break above this line would be bullish and may sharply increase gold prices, with initial resistance around $3,370 per troy ounce, followed by the recent highs near $3,470.
However, if the pattern is a descending triangle, gold may not break out above the downtrend line. Instead, it could break below support at $3,260, which currently forms the triangle's base. A break below this support could initially send gold back towards $3,210, although the larger risk is a more profound decline down to $2,975.
For now, however, gold is also finding support at its 10-day exponential moving average (EMA), representing another critical level. A breakdown is unlikely if gold can hold above this moving average. Conversely, if gold slips below the 10-day EMA, it could confirm a short-term shift in trend and indicate further downside potential. Additionally, the relative strength index (RSI) is signalling a potential momentum shift, dropping below 70 and showing signs of bearish divergence.
Written by Michael J Kramer, founder of Mott Capital Management
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
Typically, a descending triangle is considered a bearish continuation pattern. In this instance, gold has been drifting lower along a downtrend formed intraday on 22 April. Gold is approaching this downtrend line again, having failed to break above it on two previous attempts. A break above this line would be bullish and may sharply increase gold prices, with initial resistance around $3,370 per troy ounce, followed by the recent highs near $3,470.
However, if the pattern is a descending triangle, gold may not break out above the downtrend line. Instead, it could break below support at $3,260, which currently forms the triangle's base. A break below this support could initially send gold back towards $3,210, although the larger risk is a more profound decline down to $2,975.
For now, however, gold is also finding support at its 10-day exponential moving average (EMA), representing another critical level. A breakdown is unlikely if gold can hold above this moving average. Conversely, if gold slips below the 10-day EMA, it could confirm a short-term shift in trend and indicate further downside potential. Additionally, the relative strength index (RSI) is signalling a potential momentum shift, dropping below 70 and showing signs of bearish divergence.
Written by Michael J Kramer, founder of Mott Capital Management
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.