Gold bent but not yet broken
Gold came close to closing lower for the second week in a row, falling to $2372 per troy ounce on Friday morning, $111 below its high on July 17th.
This decline occurred in two impulses, with an intermediate correction in between, and fits within a 61.8% Fibonacci retracement pattern from the initial decline. The extension of the pattern within the classic expansion suggests a downside target near $2320.
On the other hand, gold found buying support on Thursday and early on Friday at the crossover of the 50-day moving average near $2360. This also coincides with the consolidation centre of the repeated pullbacks from April to June. This means that the decline in this area is well within the framework of a correction, and it is not yet possible to claim that the gold rally has broken and that a top has been established for many months and years to come.
Therefore, there are two possible lines of defence for gold in the short term: $2360 and $2320. It is worth keeping a close eye on the price action around these levels. If gold breaks through them with a strong move, we should be prepared for a prolonged decline. If the buyers manage to break the trend near one of these lines, the price may well continue to rise on buyers' encouragement.
Gold's ability to avoid a sell-off in June after breaking the 50-day probably helped it make new highs in July. This story could be repeated if the financial markets avoid another deep sell-off and return to growth even without an official correction (a fall of more than 10% from the peak).
Author
Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.
