Gold Prices Take a Breather

After an eight-trading day run gaining 5%, gold has finally taken a breather. As the U.S. dollar dropped from $98 to $96.50, gold volatility jumped above 12% and prices enjoyed a nearly $70 rise to re-test gold’s February 20 price high near $1,350. Today, gold fell over $15 quickly, back to a minor support near $1,330. This is not to say that gold’s advance is over. It may just be taking a pause before it’s next push higher, as the weekly charts (below) indicate is possible.

Let’s cover how the daily and weekly charts currently differ.

First, on the daily chart, one can see that the price of gold has closed above the green Bollinger Band for six straight days. The Bollinger Bands on this chart represent a two standard deviation distance from a 20-day moving average. These continual closes above the Bollinger Bands themselves can be considered a “stretched” move, however, when combining it with the Commodity Channel Index (CCI) and Relative Strength Index (RSI) oscillators (below), which are both in overbought territory.  All of these indicate that a pause in the price move would not be surprising.

The weekly chart (below) however shows further price rise potential. There are price supports below (black lines) the current market and resistance levels above (red lines). The resistance level that gold tested last week was from February. However, a higher resistance line near $1,375 was tested numerous times in 2016 and prices approached it again during summer 2017 and multiple times in early 2018. (The greater the number of tests, the more important the level.)

The oscillators, including Chand Trend Meter also can be used as guides. RSI is approaching its overbought line. This level has coincided with price peaks in the past; however, it has also been where price only paused before going higher. The Slow Stochastic indicator shows something different. The current reading is just near its midpoint and heading north with plenty of room to run. The Chand Trend Meter helps to identify the strength of a current trend. (The higher the reading, the greater the strength of the uptrend.) This can be a useful indicator to watch, not just for its absolute level, but also for a flattening or downturn in its reading.

Overall, with analyzing the daily and weekly chart, there are indications that the recent advance in gold prices have potential to climb up to the next resistance level near $1,375, after a pause is taken.

Disclosure: The author holds both long and short gold positions in gold.