Gold: Double top or another false hope for bears?
Gold had been in a consolidation phase over the past couple of weeks, before staging a breakout attempt this week. Its earlier rally came to a halt just slightly below its all-time high of $2685 hit in September. This is the bear's first real attempt to cause a bit of a reversal in prices, but it is far too early to jump into any conclusions.
While it remains to be seen whether today's price action will be classed as a double top, the bears have a lot of work to do to turn the tide in their favour. For a start, key short-term support between $2666 to $2673 needs to taken out. If that condition is met then we will need to see a lower low underneath the most recent low at $2638. Only at that point will the bears have something solid to work with.
From a macro point of view, and given how overstretched gold has become on the long-term charts, there are several factors that could hold back its upward momentum.
Disappointment over China's stimulus measures, no major escalation in the Middle East conflict, and continued strength in US bond yields and the dollar could all combine to limit gold's rise, and even cause a reversal.
Despite these factors, gold remains in a strong bullish trend, although technical indicators suggest a potential bearish reversal could occur if these conditions persist. The Relative Strength Index (RSI) shows overbought levels on the monthly and weekly charts (not shown), which often precede a pullback or consolidation phase.
However, a clear reversal pattern is needed before confirming a downturn.
By Fawad Razaqzada, market analyst at FOREX.com
While it remains to be seen whether today's price action will be classed as a double top, the bears have a lot of work to do to turn the tide in their favour. For a start, key short-term support between $2666 to $2673 needs to taken out. If that condition is met then we will need to see a lower low underneath the most recent low at $2638. Only at that point will the bears have something solid to work with.
From a macro point of view, and given how overstretched gold has become on the long-term charts, there are several factors that could hold back its upward momentum.
Disappointment over China's stimulus measures, no major escalation in the Middle East conflict, and continued strength in US bond yields and the dollar could all combine to limit gold's rise, and even cause a reversal.
Despite these factors, gold remains in a strong bullish trend, although technical indicators suggest a potential bearish reversal could occur if these conditions persist. The Relative Strength Index (RSI) shows overbought levels on the monthly and weekly charts (not shown), which often precede a pullback or consolidation phase.
However, a clear reversal pattern is needed before confirming a downturn.
By Fawad Razaqzada, market analyst at FOREX.com
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