Key Levels in Gold: Bullish Momentum Challenges Resistance Range

Gold reached a trend high of 1,997 last week as it continued to advance off the recent swing low of 1,810. A two-day pullback has followed leading to a successful test of support today at the 23.6% Fibonacci retracement at 1,953, the day’s low. Gold is on track to close strong, in the upper third of the day’s trading range, and possibly with a bullish doji hammer candlestick pattern. Last week gold took a short two-day rest before proceeding higher, reflecting strong demand. Might is do so again?

Breakout Above Today’s High is Bullish

A decisive rally above today’s high of 1,981 may be used as a bullish signal by aggressive traders. Given the strength seen so far in gold and today’s minimum retracement, a successful upside breakout above today’s high will indicate that strength is persisting. It reflects buyers getting more aggressive than they might as the retracement of 23.6% is relatively shallow. Assuming upside follow through, gold will have recovered quickly to resume the trend, as it did after the prior two-day consolidation that tested resistance around the downtrend line.

Resistance Zone Goes up to 2,0006

The resistance range hit last week is identified from 1,985 to around 2,006. If gold does continue higher in the near term, it would first need to exceed the top of that price range at 2,006. Within the range is the 78.6% Fibonacci retracement at 2,001 and the completion of a measured move is at 2,000.

The measured move indicates that the current rally matches the minimum advance on a percentage basis seen in two previous measured moves. There are two previous moves marked on the chart as they were relatively large moves in a short period of time, eight days in each case.

Weakness Indicated on Drop Below 1,953

Alternatively, the retracement is not yet complete and gold moves into a deeper pullback before it is done. A drop below today’s low of 1,953 points to this scenario. The price zone around the 38.2% Fibonacci retracement is the next area to watch for support. It goes from around the previous trend high of 1,932 to the 38.2% level at 1,926.

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