Gold prices have been consolidating over the last week, currently stuck in a sideways channel. Looking at the past three weeks, the yellow metal has been creating an inverse head and shoulder pattern with a significant neckline near 1,746. A successful climb above the neckline may change the recent bearish bias to bullish in the short-term.
Resistance was met at around the 1,729 region, being the 61.8% Fibonacci retracement level of the down leg from 1,765 to 1,671 after prices hit the 38.2% Fibonacci, forcing the commodity to reverse higher. The neutral outlook is supported by the momentum indicators. The RSI is sloping marginally up in the positive area, while the MACD is flattening above the zero line and below the trigger line.
Should an upside reversal take form, immediate resistance would likely come from the 1,733 barrier before meeting the neckline at 1,745. A break above it could re-challenge the 1,754 resistance at the seven-and-a-half year high of 1,765.
If prices head lower, support should come from the 40-period simple moving average (SMA) near 1,723 ahead of the 100-period SMA, which stands slightly above the 50.0% Fibo of 1,718. A drop below the 1,716 support would hit the 38.2% Fibo of 1,706 and the lower surface of the Ichimoku cloud. Even lower, the 23.6% Fibo of 1,693 could be a key level for bears.
Summarizing, traders should be waiting for a possible completion of the inverse head and shoulders formation in the 4-hour chart before looking for more bullish actions.
