Gold Technical Analysis May 2013: downward momentum not over

Gold price action and chart patterns still paint bearish technical picture

Despite my personal belief that Gold in merely retracing after a steep rally since 2002, it is hard to convince myself that it has turned a corner. This is what I said previously:

Big technical picture of gold is looking potentially flag like i.e. continuation of previous uptrend. Short term wise however the downward momentum (blue dotted line) is not over till is over. And former support (purple) will likely become resistance.

Monthly chart of gold going back to 2007

Big technical picture of gold is looking potentially flag

 

Technical analysis of Gold (XAUUSD) daily chart from November 2012 till date

I use a number of methods that I believe is the closest to price action. Specifically I look out for:

  1. Monthly highest and lowest traded price
  2. Chart patterns that have high probability outcomes.

 

Fact #1 – lower highs each month

Pink boxes show traded price of gold in each month. Each box is 1 month in duration and the highs and lows show the highest and lowest traded price of the month. Gold started making lower monthly traded lows since November 2012 with the exception of March and May this year. But more importantly, it has not made any higher months AT ALL during this whole duration. The trend is clearly down and there is little clue that this down trend momentum is changing or will change.

Chart of XAUUSD from Nov '12 to 05 June 2013

Fact #2 – no bullish reversal chart pattern

Chart patterns most associated with bullish reversals like the double bottom and triple bottom are simply not visible. High probability patterns should jump out visually so if we cannot see clearly, it is a poor pattern or it is not there. On the other hand there is one pattern I can see clearly and it is bearish flag/pennant continuation pattern. At the moment the pattern is not confirmed. It will be when price breaks the supporting trend lines below.

 

Where will price go if it continues down?

That is anybody guess but a simple method says around $1180. But it could slide along anywhere and rebound from the equidistant channel in the topmost chart. Watch this video “What is the best way to draw equidistant channel in MT4

Chart showing Gold price projection

This simple projection places Gold at around $1180

 

What kinds of technical signal should we expect for a bullish set up?

  1. If price were to break May high, this will buck the trend we saw in the last few months.
  2. A double bottom W or triple bottom VVV should be very positive too but they must break what we call the neckline.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005. Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX. Come find Tiong Hum on Google+
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