Technical analysis – Gold tests 3,300 as downside pressures persist

Gold hasn’t had the best start to the week, as it faces selling pressure for the third straight day, following the false breakout from the bullish pennant formation. Hopes that negotiators from the US and China will make progress in resolving their trade dispute when they meet in London later today is aiding risk sentiment.

The momentum indicators point to a lacklustre session. The stochastics are headed sharply lower but remain some distance from the oversold zone. However, the RSI has flatlined just above the 50 level. This neutral-to-bearish bias is clearly displayed in the price action, with immediate support coming from the 20-day simple moving average (SMA) just beneath the 3,300 mark.

Should gold breach this critical barrier, there’s likely to be further support at the 50-day SMA, which is about to intersect the 38.2% Fibonacci retracement of the April-May downleg at 3,265.54. Further down, the 23.3% Fibonacci of 3,210.18 could halt the decline before the May low of 3,120.68 comes into range.

If, though, the 20-day SMA is successful in fending off the bears and the price reverses higher, there could be another stiff battle around the 3,355 area, which encompasses the 61.8% Fibonacci. After that, attention would turn to the May peak of 3,437.76 before gold makes another attempt at its all-time high of 3,499.90 set in April.

In a nutshell, gold is struggling to regain some momentum and whether it holds above the 20-day SMA or slips below it could determine the next direction. Dropping below the May trough of 3,120.68 would set the precious metal on a new bearish phase, while only a climb above 3,500.00 would restore the longer-term bullish outlook.