Gold Technicals – Bears watching out for breakouts on better global economics

Gold, the traditional currency in times of war and uncertainty, has been on the back-foot ever since American, European and Chinese economies started to recover. 2012 has not been a good year for Gold as it mostly traded sideways during the year. Price reached a high of 1,796 USD per troy ounce, a dwarf compared to 2011 highs of $1,921. Y/Y gain for 2012 was under 100 USD per ounce, a stark contrast to what we’ve seen for the past few years which saw Gold trading from just above 500 to the historical high in 5 years. It is apparent that the once unstoppable Gold rally is no more, with bulls taking a break, giving chance for the bears to pounce.

Weekly Chart

Weekly chart shows a descending channel that has been in force since October 2012, which was triggered by the failure of breaking 1,780 – swing tops back in Nov 2011 and Feb/Mar 2012. Current bearish momentum on the weekly chart remains intact, with last week’s Doji formed with body just below Channel Top. Current long red candle sets up an Evening Star/ Bearish Abandon Baby pattern. Based on current bearish momentum, a break below 1,630 support is possible, with ample space lower. Price may find some support around 1,530 levels which may be the confluence with the Channel Bottom should we reach there. Also, Stochastic readings will be firmly entrenched within Oversold territory should that happens, enhancing a bullish/short-term pullback scenario.

Daily Chart

From a daily chart perspective, bears still have their work cut out for them, Stochastic already entering Oversold regions. Also, beware of false breakouts on the daily chart which has happen once during early Jan 2013. Ichimoku is providing some encouragement though with a Kumo twist occuring with price trading below the current Kumo, which is a bearish signal. In this light, aggressive traders may wish to ignore the Stochastic signals as these signals tend to be invalidated during strong trends (see JPY pair stochastics). However, conservative traders may wish to wait for confirmation of breakout below the 1,630 floor before taking any further actions.

G20 meeting today may still provide further insights on how 2013 may pan out. Any signs of collaborations between nations for growth will almost certainly drive Gold lower. Conversely, any infighting hinted between nations will open up fear in the market for safe havens such as gold to rally.

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