Gold Technicals – Next Bearish Leg Starting

Hourly Chart

Gold prices recovered more than 20 USD per oz from peak to trough during Asian trading session today. The gain was brought about by improved risk appetite due to speculators believing that the US economy is not strong enough for Bernanke and the Fed to carry out the QE taper timeline. However, it is also worth noting that Gold prices actually pushed lower during US trading session yesterday, when the worse than expected GDP print sparked the above-mentioned speculative move. Hence we are forced to discard the assertion, or alternatively come to the conclusion that bearish sentiment in Gold is extremely strong currently. Looking at initial price reaction of Gold at 8.30am EDT (8.30pm SGT on chart), the initial bullish reaction of gold confirms the assertion, and highlights the marauding strength of bears as price pushed sharply lower after bulls failed to take advantage of this opportunity to hold above the 1,245 interim support/resistance.

Despite the strong bearish sentiment, price managed to stabilize just around the swing low, forming a support line zone just under 1,225. This is not surprising as there isn’t any fundamental drivers behind this gold decline. Bears did eventually tire and allowed the greater fundamental sentiment (which drove USD weaker) during Asian hours back to 1,245 once more. Despite this minor setback, the fact that 1,245 is holding underlines the immense bearish pressure price is under even right now. Stochastic readings suggest that bears may be engaging in a new move soon, with readings and Signal line both below the 80.0 mark. This puts the consolidation floor as a viable bearish target, and the possibility for a bearish breakout for further acceleration lower remains open.

With weekly Jobless Claims figures scheduled to be released today together with Pending Home Sales and Personal Consumption figures, there is a chance that weak data will drive Stock and risk appetite higher (and USD weaker). We could see a replay of yesterday where Gold rally for a short while, only for bears seeking bargain sells to regroup and push lower once more. This will be another good test to see if today’s bears are as robust as previous days, and if price does manage to go lower in spite of any initial rallies, initiative would be favoring Bears and the likelihood of further bearish extension increases.

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