Weak Close is Likely Clue for a Deeper Retracement
Gold is set to close weak, not only on the daily chart, but also on a weekly basis. Unless there is a rally prior to today’s close, gold will end the week with a bearish shooting star candlestick pattern. A weekly bearish signal will subsequently be given on a drop below this week’s low of 2,303. If hit, the short-term 8-Day MA will have already been broken.
Initial Retracement Levels
If a bearish retracement does trigger support might first be seen around the 38.2% Fibonacci retracement at 2,282. Also, the 50% retracement is at 2,256. However, since gold would be coming off a very aggressive rally, having risen as much as 22.5% from the February swing low of 1,984, a rapid recovery from a retracement may not come quickly.
Notice that the relative strength index (RSI) momentum oscillator has formed a double top and is fast turning back down from overbought conditions. The RSI has been the most overbought recently since the 2020 swing high.
Correction Could See Test of 20-Day MA
When considering the moving averages, a decline to test support around the 20-Day MA would not be surprising once the 8-Day line fails. It is currently at 2,249. Gold rose away from the 20-Day line prior to the symmetrical triangle breakout on February 29. Since then, there has not been a test of support at the line.
That means that once it is approached again, there is a good chance it will be tested. Today’s price action does not change the long-term bullish outlook for gold given its recent breakout from a multi-year basing pattern. As with all assets, profit taking eventually takes hold, weakening short-term demand and leading to a retracement.
