- Gold's weekly chart is flashing long-term bear revival, i.e. the sell-off from the record high of $1,92.94 (September 2011 high) has resumed.
- The breakdown is accompanied by pick up in volatility from record low levels, Bollinger Band width indicates.
- $1,200 could be put to test by the end of 2018.
Currently, gold is trading at $1,240, having clocked a seven-month low of $1,236.52 earlier today and looks set to extend losses further towards $1,200 by the year-end, the technical charts indicate.
Weekly chart: Bearish continuation pattern
The metal looks set to end the week below the trendline sloping upwards from the December 2015 low and December 2016 low.
However, if we increase the chart time range, the break of the trendline looks more like a pennant breakdown - a bearish continuation pattern, which indicates the sell-off from the 2011 high of $1,920.24 has resumed.
Simply put, the corrective rally from the December 2015 low of $1,046 has ended and the bears are back in a commanding position.
Hence, the metal could drop to/below $1,200 in the next six months and could revisit $1,046 in the long-run.
Further, the volatility, as represented by the spread between the Bolling Bands (standard deviation of +2,-2 on 20-week moving average), has picked up from the record lows seen in the first half of May, adding credence to the pennant breakdown, but is holding (currently at 0.10) well below the recent high of 0.22 seen in January 2017.
So, it can be argued the sell-off has just begun and there is plenty of room for a further rise in volatility and drop in gold prices.
The moving averages also confirm the bearish view. For instance, 5-week and 10-week MA are trending south. Meanwhile, at 34.00, the relative strength index (RSI) is biased toward the bears.
The weekly chart shows a long-term bearish revival, so prices risk falling to/below $1,200 in the next six months.
The 200-week MA support of $1,234 will likely hold for a few weeks, and a minor corrective rally cannot be ruled out, courtesy of the short-term oversold conditions. However, the bias would still remain bearish and only multiple weekly closes above the 10-week MA would abort the bearish view.
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