Gold prices advanced to a fresh seven-and-a-half-year peak of 1,746.95 on Tuesday, continuing the upside tendency from the rebound off 1,456 on March 20.
However, the technical indicators are suggesting a possible downside retracement in the 4-hout chart. The RSI seems to be losing momentum returning near the 70 level, while stochastics are approaching the oversold territory. The red Tenkan-sen is capping the price and the blue Kijun-sen is flattening, all signaling a more cautious trading in the short term.
A drop lower would challenge the immediate support level of 1,703, which overlaps with the 20-period simple moving average (SMA) and the ascending trend line. A significant step below this strong hurdle could send the market until the 1,638 support, which stands near the 38.2% Fibonacci of 1,633. Even lower, the psychological level of 1,600, where the 50.0% Fibo is located, could attract traders’ attention.
Traders, however, would be more eager to engage in buying activities if the price manages to move higher again, touching the 1,746.95 resistance. Above that, the October 2012 high of 1,796 could come next, ahead of the 1,925 barrier, taken from the high on September 2011.
Summarizing, the yellow metal is expected to show some negative correction before it moves higher again.
