Commodities

Technical Analysis – Gold short-term bias skewed to the downside; long-term uptrend intact

Posted on October 5, 2020 at 7:39 am GMT

Christina Parthenidou, XM Investment Research Desk

Gold opened on the negative side on Monday, unable to remove the barrier around the 38.2% Fibonacci of the 1,670-2,079 upleg and stretch into the 1,900 zone. The 20-day simple moving average (SMA) also happens to be in the neighbourhood, adding extra importance to the region.

In the short-term picture, the metal pierced the previous low from August 12, marginally though, before bouncing up, while the 20- and the 50-day SMAs have recently posted a bearish cross, creating speculation that the downward direction may be extended. Moreover, the price seems to be trading within a descending triangle, which usually resolves on the downside, but the price should first remove the base around 1,863 in order to signal a negative trend reversal.

The momentum indicators are also somewhat discouraging, suggesting that any meaningful upside correction may come with some delay. The RSI seems to be losing strength below its 50 neutral mark despite its latest rebound, the red Tenkan-sen line has yet to climb above the bue Kijun-sen, and the MACD although having strengthened from recent lows, remains negative and around its red signal line.

A decisive close below the 50% Fibonacci of 1,866 may attract new sellers, likely driving the price towards the 61.8% Fibonacci of 1,818. Beneath that, another bearish wave could hit the market, and it would be interesting to see if the 200-day SMA can halt the sell-off around the 78.6% Fibonacci of 1,750. Otherwise the long-term profile will switch to neutral from positive.

Alternatively, an extension above the 38.2% Fibonacci and the 20-day SMA, both around 1,914, could help the price to recover towards the upper surface of the Ichimoku cloud, where the 23.6% Fibonacci of 1,973 is also placed. Should it successfully breach that wall, gold will need to overcome the 2,015 resistance from August 18 to re-challenge the 2,079 record high.

In brief, the short-term risk for gold is still skewed to the downside and a sustained move below 1,866 could add more pressure to the market. Should the sell-off steepen below 1,750, the long-term positive outlook would also see a downgrade.

gold

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