Gold Holds Long-Term Bearish Technical Pattern

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Spot Gold fell to around 1270 on Monday and extended the decline that began in early July. Before looking at the medium-term picture, let’s review the weekly chart for a long-term perspective. The first chart shows gold peaking around 1900 in September 2011 and quickly falling to the 1550 area. The metal then embarked on a long consolidation and broke support with a sharp decline in April 2013. Gold then moved into another consolidation that looks like a descending triangle, which is a bearish continuation pattern. The lower highs reflect weakening demand and increasing selling pressure at lower price levels. The equal lows represent an area of demand that holds the to the pattern. A break below this demand area (support) would confirm the pattern and project further weakness towards the 1000 area. The indicator window shows the Correlation Coefficient ($USD,$GOLD) spending most of its time in negative territory over the last three years. This means gold tends to move opposite the Dollar Index, which is in an uptrend now. 

gold_price_weekly_2012_August_2014

 

The second chart shows daily prices for a medium term outlook. Gold broke out in mid June with a surge above 1310, but could not hold this breakout and fell back below 1300 in mid July. A series of lower highs and lower lows has taken shape since this failed breakout. Even though the pattern looks like a falling wedge, the immediate trend is down as long as it falls. Look for a break above 1325 to reverse this downtrend. Until reversed, I would expect the trend to remain in motion and target a move to the 1240 area or lower.

gold_price_daily_2_september_2014

 

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