Gold’s most recent advance ended last week when price failed to break through the sturdy resistance level around $1170. As a reminder, $1170 is where several technical indicators converged, including a bearish trend line, the 100-day moving average and the 38.2% Fibonacci retracement level of this year’s range.
The fact that the rally has stalled at the relatively shallow 38.2% Fibonacci retracement level bodes ill for gold bugs as it suggests the bears are still clearly in the driving seat, which means that the path of least resistance is to the downside.
Thus, from here, it is more likely we will see lower rather higher price levels for gold, unless something changes dramatically about the metal’s still-weak fundamental outlook. If gold finishes Friday’s session below the $1120/5 resistance-turned-support range, then the next bearish targets could be the 61.8% Fibonacci retracement level of the most recent upswing at $1112/3 followed by $1100. Some of the longer-term technical levels to watch on the downside would be the July low at $1077, followed by the Fibonacci extension levels that are shown on the chart.
On the upside, there are at least three key short-term resistance levels that need to be watched closely. The first is around $1145, which roughly corresponds with this week’s earlier high. Then there is the bearish trend line, and depending on the speed of the potentially rally, this may come in somewhere below $1160, which incidentally also corresponds with the 100-day moving average. Finally, the August high of $1170 is the next key resistance. If this level breaks down then gold may stage a significant rally as some of the existing sellers will be forced to abandon their positions.