Gold has paused its advance to a 10-week high of 1291.86 following a 4-day rally that led to the market becoming overextended. On the 4-hour chart, downside momentum seems to be picking up as the RSI has turned back down with a steep slope after reaching overbought territory above 70.
The key psychological level of 1280.00 is an immediate support level. A break below this may pave the way for a deeper decline towards 1271.33. This is the 23.6% Fibonacci retracement level of the rise from 1204.79 to 1291.86 and is a potential support level. It recently acted as a strong resistance level from July 28 to August 4 before it finally gave way on August 9. A move below the 50% Fibonacci at 1248.28 would increase downside pressure to target 1238.03 before the market sets its sights on 1204.79 (July 10 low).
A bounce off the key 1280.00 level could see the market re-test the August 11 high of 1291.86. Breaking this point would open the way to the next major high at 1296.07 (June 6 peak).
In the near-term, gold is expected to maintain a neutral bias. A close above the key psychological level of 1300.00 would indicate that the market could gain momentum and extended a move higher towards the next peak at 1337.24.
Looking at the bigger picture, the uptrend from 1204.79 to 1291.86 remains intact and the upward sloping 20-period SMA is supporting the bullish market structure.
