Gold : Technical Outlook

On analyzing the performance of gold for an extended period, we found that the metal is hovering near the support levels. Gold peaked at around USD 1,920 in 2011. In 2012, the metal failed to post a new high. However, it managed to hold above the low of 2011. Eventually, gold breached the low of 2012 (1,527) and thereafter declined. The metal found support near the 38.2% retracement level. Since then, it has been consolidating. Currently, there is a lack of clear direction. Gold is still in bearish mode on an extended timeframe. On the monthly charts, momentum oscillators are hovering in the negative territory. In the long term, the metal could find support at 1,190. If the metal closes below the mentioned level, it would lead to further decline. Considering the extended timeframe, we believe gold could continue to consolidate in the near term. A clear breakout would determine the direction of the yellow metal in the coming months.

As evident from the weekly charts, gold declined in December 2014 and posted a low of 1,184. Eventually, the metal found support near the low of June 2013. Considering these technical facts, such formation indicates that it could be a possible double bottom formation.

In March, we had anticipated that gold would soon bottom out. The ongoing correction would halt for some time, with likely short-term recovery. In July, we were confident that the metal would significantly bottom out. Our argument was supported by fact that it formed higher lows in July and August. As predicted, the yellow metal bottomed out during the indicated months, with chances of a potential double bottom. In some cases, a double bottom formation results in an instant rebound, whereas it might take a few months to develop at other instances. In this case, the metal is consolidating and making a base formation.

Currently, gold remains in a fragile state until key resistance levels are breached on both daily and weekly charts. A trend reversal is indicated by a higher swing high. However, gold is yet to make a higher high on the daily as well as weekly charts.

From the weekly charts, we believe gold is consolidating in a triangular formation over the past 18 months. The metal has tested the trend line of a triangle on numerous occasions and found support at that level. The yellow metal appears to move higher. On the weekly charts, gold is maintaining above the upward sloping trend line and previous swing low. The above technical studies suggest the possibility of sideways trade.

On the daily charts, gold posted a lower low for the fourth consecutive trading session. The metal is trading marginally below the resistance level of 1292.50 (20-day EMA) and failed to sustain above this level. The metal needs to close below the 20-day moving average crossing to confirm a short-term low. In addition, on the daily charts, it is making a bearish flag formation. Thus, the yellow metal continued to appear weak and sideways move is expected. Moreover, daily momentum oscillators are hovering in the negative terrain. Traders are advised to take a position on clear breakout.

On the daily charts, Bollinger bands indicate the price is moving from the lower to higher band. The price is retreating after testing the upper band. A shift toward the middle or lower band is expected. On various occasions, the yellow metal can be seen approaching the lower band, suggesting selling at resistance levels. To confirm the trend reversal, gold is required to hold above the middle band.

Gold posted a series of lower highs on the daily charts. The metal failed to hold above USD 1,340 and USD 1, 310. Any gains on the upside need to sustain themselves above the 20-day EMA to indicate that there could be another attempt to breach USD 1, 310. Any decline below USD1,275 would enable the metal to test the USD 1,250 and USD 1,240 levels.