Gold maintains a bullish market structure on the 4-hour chart and is consolidating around a key level at 1257.62. This is the 23.6% Fibonacci retracement level of the rally from 1204.79 to 1274.09 (July 10 to August 1 uptrend). This level has provided both support and resistance in the past, as far back as mid-June.
The market paused the rally at 1274.09 after becoming overextended as RSI reached overbought territory at 70. Consequently, gold prices declined from their peak. RSI fell below 50 into bearish territory, leaving room for further downside in the market.
The August 4 low of 1254.17 is expected to provide support. A further decline would target the 38.2% Fibonacci level at 1247.57. From here, the July 26 low of 1243.72 comes into view (also a Bollinger band level). A drop below 1239.35 (50% Fibonacci) would likely bring about a deeper decline and risk reversing the recent uptrend.
Alternatively, a bounce higher from current levels away from 1257.62 could target the 1274.09 peak. A sustained break of the upper Bollinger band is needed in order to increase upside momentum for a move towards 1280.00. Clearing this level would open the way towards the key 1300.00 level.
The market remains under pressure in the near-term as RSI is sloping down and is below 50 in bearish territory. Meanwhile, prices are still trading close to the lower Bollinger band, keeping the bias in gold to the downside.
