Gold: Key Support Intact, but Gains May Be Limited

Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.

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The last time I mentioned gold was in the October 28th weekly forecast. At the time, the market was trading at 1233 and looked poised to test 1215 support given the recent bearish rejection candle that formed on the 26th.

Here’s what I wrote on October 28th:

As for resistance, we were keeping a close eye on the 1235 area. Similar to 1215, the 1235 area served as a pivot earlier this year and is also the December 2017 low.

You can see how several sessions last week encountered selling pressure in the 1235 region. Friday even carved a bearish rejection candle that could hint at a pullback early this week.

However, while we may see a brief hiatus in the recent buying pressure, I see nothing here to make me think gold bulls are finished. In my opinion, gold remains a buy while above 1215 support.

Sure enough, following the October 26th bearish rejection candle below 1235 resistance, gold pulled back over the next three sessions. But as you can see from the chart below, buyers did come to the rescue at the 1215 handle on November 1st.

And just as we’d expect, sellers are once again making their presence known this week following Thursday’s retest of 1235. Until buyers clear that resistance area on a daily closing basis (New York 5 pm EST), we’ll continue to see this sideways movement.

Now, while gold bulls will have every intention of pushing prices higher, a pattern has developed which makes me hesitant to side in their favor.

Notice the ascending channel that’s developed on the daily time frame. The lower portion connects with the August and October lows while resistance lines up with the August 28th and October highs.

As you can see, we have conflicting patterns here. On the one hand, buyers broke free from a long-standing trend line back on October 11th hinting at a possible bullish reversal. And on the other, sellers have capped the recent advance enough to carve what could be a bear flag pattern.

In situations like these, it’s usually best to wait it out. But if you insist on trading gold, it’s best to do so knowing this is a range-bound market. You’ll want to limit your expectations for extended moves until buyers or sellers regain control.

In other words, as long as gold trades within this short-term ascending channel, expect indecisive price action consistent with a consolidating market.

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