Signs of weakness
Today’s pullback dropped below the previous trend high and potential short-term support at 2,758, as well as below the upper channel line of an ascending parallel trend channel. They showed no sign of support. Notice how resistance formed around that line almost every day last week, indicating that the market recognized the prices represented by the line. An additional sign of weakness was indicated by a decline below the short-term uptrend line over the lows of the past few weeks. A daily close below the three-day low of 2,740 today would provide additional evidence of weakening demand.
2,696 is the primary lower target
If gold continues to fall, it seems very likely that it will test support around the 20-day MA at 2,696. The line represents an area of trend support since it was recaptured on August 9. Therefore, a decisive drop below it would indicate a possible change in character. The fact that the price has recently followed the internal uptrend line more closely also indicates that the price is potentially important in the short term. It currently identifies a price similar to 2,686, the top of the flag, which triggered the most recent, more significant upside breakout.
If the 20-day line fails, the 50-day line could be next on the agenda
It is also possible that the correction will gain more significance by moving below the 20-day MA and staying there. In that case, the next target lower would be the 50-day MA, now at 2,650, along with the associated uptrend line. The 50-day line is aligned with the next lower uptrend line. That line is also the lower part of an ascending parallel trend channel. The top line of the channel is a copy of the bottom line which has largely corresponded to the 50-day MA since August 5.
For a look at all of today’s economic events, check out our economic calendar.