Gold may be due a correction but bears might get the last laugh

In response to our prior Gold analysis, the shiny yellow metal’s trendline folded and a decisive break of $1300 ensued. But since finding support around $1260, can the bears take it to fresh lows?

The daily chart clearly shows the magnitude of the bearish break out from compression which had, up until that point, provided a coiling formation between its December 2016 trendline and 200-day average. Overall the average had capped well as resistance, although it is a bearish hammer which marked a final bullish push before prices rolled over like a bearish boss.

With the hammer providing a prominent swing high, a bearish channel can now be identified. And as bearish momentum on this leg lower has intensified, we fancy its chances of eventually breaking lower.

Still, prices have since found support around the 1260.46-1263.63 support zone and recent price action is sending smoke signals for a potential correction. The lower wick of yesterday’s bullish hammer has respected the support zone which also appears to be over extended relative to its lower Keltner band, whilst RSI is also oversold. All of that, combined with the bearish outside day on the US dollar index means the potential for a bounce higher from here should not be overlooked.

That said, whilst we remain below the 1281.96-1284.11 highs, we’re on the lookout for an eventual short. We’re happy to let the anticipated correction unfold which may provide a better reward to risk opportunity in due course. And if we are to see prices break lower, we see potential for a move down towards $1236.32, in line with dominant momentum.