Breakdown in process
Yesterday, gold fell below a short trendline that marks trend support for a tight consolidation pattern over the past few weeks. This put the price at risk of entering a bearish correction, especially as the day’s close was in the lower third of the day’s price range. Today’s bearish candle is additional evidence for a possible bearish continuation.
Next, a drop below yesterday’s low at 2,732 will likely lead to a test of lower support areas. The first is a range from 2,700 to 2,686, consisting of the 20-day MA and a previous trend high and bull flag high, respectively. Furthermore, an internal upward trend line points to a similar price area. If it fails to halt the descent, the 50-day MA at 2.624, along with the bottom of the flag at 2.60, become likely targets.
Weekly chart ends bearish
Of greater importance is what is shown on the weekly chart (not included). Gold will complete a bearish shooting star doji candlestick pattern today. And it is expected to close weakly, in the lower third of the week’s trading range. A decisive drop below this week’s low at 2,725 will trigger a disruption to the weekly pattern and therefore a bearish weekly reversal.
It would be confirmed at a daily close below the low. The next lower potential weekly support level would be last week’s low at 2,709. Also keep an eye on the three-week low at 2,638 if gold continues to fall. Gold is highly overbought on the weekly relative strength index (RSI) and is showing a small bearish divergence in the daily time frame.
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