Gold Facing Stiff Resistance Despite Softer US ISM

Gold bugs will no doubt be pleased with the recent rally in the precious metal but further gains could be in question as the bearish trend line is likely to cap further gains.

The past few weeks have been one of celebration for precious metal advocates as Gold and Silver seemingly turned a corner and started trending higher. The rally was largely fuelled by mounting speculation over the current state of the US economy and Yesterday’s weak ISM figure seemed to confirm that softness abounds. However, despite the encouraging fundamentals, the metal appears to have run into the road block in the form of the long run bearish trend line.

Taking a close look at the charts shows Gold remaining under the influence of the long term bear trend. Price action has remained capped below the trend line and has subsequently continued to decline in an impulse wave fashion. In confluence with price action, RSI has been trending strongly north and as price reached the trend line, RSI has also reached into overbought territory. Subsequently, the metal is likely to be in for a downside retracement in the coming days.

In fact, looking back to October shows a similar trade setup as price rallied sharply to the trend line before failing and pulling back towards the central tendency. The comparison with RSI is also stark, showing a touch upon over-bought territory, before falling in line with the retracement.

Subsequently, expect to see Gold fail at the current test of the bearish trend and retrace back towards major support around the key $1100 handle. However, a major fundamental event looms on the horizon in the form of the US NFP and unemployment figures that could spoil the party. Given the fundamental softness of the current US economy, expect the NFP figure to be under pressure and to potentially impact commodity markets.