Key Points:
- The long-term trendline seems to be broken.
- A corrective ABC wave could be seen in the coming weeks.
- Losses could extend to the 1180.00 handle.
As a result of a breakout below its long-term trendline, gold has ostensibly confirmed recent fears that the metal’s trajectory is going to be rather bearish moving ahead. Indeed, Monday’s nearly 2% slip has cemented the bias of numerous technical readings that had been suggesting that the metal was in need of a corrective movement. However, exactly what form our corrective decline will take and how far losses will extend is up for debate and is worth taking a closer look at.
First and foremost, the sharp downturn and subsequent reversal tends to indicate that we are going to see an ABC wave over the coming weeks. As shown below, the historical reversal zone around the 1219.10 handle has struck again and looks as though it is going to remain intact – a sign that the ‘A’ leg has completed. Of course, this means we are now moving into the second leg of the pattern which we expect to bring gold prices back to around the 1244.25 handle. This bias is reinforced by the fact that stochastics remain oversold and are in sore need of being relieved.
However, just because we are moving into a near-term uptrend doesn’t mean we are necessarily going to see the metal make the required reversal to start the ‘C’ leg of the pattern. This is where the old trend line comes back into the picture as it is likely to be a source of resistance moving forward. Importantly, this should limit upsides and force gold to retreat at that 1244.25 handle – marking the start of the final leg of the ABC wave.
Once the final leg is underway, the highly bearish EMA bias is likely to be felt once again and encourage the metal to move into a rather steep decline. Furthermore, the 100 day moving average will be providing substantial dynamic resistance as gold retreats which will limit chances of an intra-day sentiment swing disrupting the overall downtrend. Ultimately, this corrective structure should see the metal move back to around the 1180.00 mark – the lowest point in the first trough seen in during the recent uptrend.
