Gold crashed to $1,160 this week - its lowest level since January 2017.
The sell-off trapped me on the wrong side of the market as I was expecting the corrective rally to gather pace this week, the rationale being a solid defense of the $1,200 mark in the first ten days of this month and the bullish 14-day RSI divergence, sharp drop in demand for gold put options, and a favorable seasonal factors.
Moreover, the turmoil in Turkey put a bid under the greenback - the new safe haven currency and gold's biggest nemesis - consequently, the yellow metal took a beating.
As of now, the yellow metal is trading at $1,178 and is looking most oversold since July 13, according to the 14-week relative strength index (RSI).
Weekly chart
As seen in the above chart, the RSI is currently located at 24.00, the lowest level since July 2013. As a result, gold could stabilize around $1,180 in the next week.
Daily chart
The yellow metal created a large doji candle on Thursday, signaling indecision in the marketplace. However, when viewed against the backdrop of the 15 percent drop from the April high of $1,365, the big doji candle indicates bearish exhaustion and adds credence to extreme oversold conditions called by the 14-week RSI.
View
The sell-off will likely stall in the coming week courtesy of bearish exhaustion (Thursday's doji candle) and the oversold weekly RSI.
However, a stronger corrective rally will likely unfold only if the yellow metal defends and consolidates above $1,172 (61.8 percent Fibonacci retracement of the rally from the 2015 low to 1016 high) in the next week.
Further, it is worth noting that the upside will likely be capped around $1,210 in the near-term as long as the 5-week and 10-week moving averages (MAs) are trending south, indicating a bearish setup.
Bearish scenario: The metal could drop to $1,122 (December 2016 low) if prices consolidate in the next couple of weeks, allowing the weekly and the daily RSI to position in a more bear-friendly manner, before finding acceptance below $1,172 (61.8 percent Fibonacci retracement).
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