For swing traders, the current rebound in XAU/USD looks quite intriguing as it retests a number of technical arguments, including a head and shoulders neckline break!
Let's examine some potential patterns that bulls and bears can utilise to support their basic analysis of gold.
A head and shoulders pattern that emerged lately around the close of October and into November is visible on the 4-hour chart above, with the neckline area located somewhere around the $1,975 handle.
Last week, the neckline was broken. There was a quick decline to almost reach the 200 simple moving average again, but buyers quickly entered and seized the market. These were some really crazy changes. Check out our most recent FX Weekly and Global Market Recaps to find out what drove both the USD bullish run and the XAU/USD bounce.
This week, gold returned to the broken neckline, where sellers were standing by to reclaim the precious metal. Given that the neckline and 100 simple moving average are correlated with the 61% Fib level, it is plausible that both Fibonacci and moving average players were waiting.
If there is a strong belief of a future move lower, individuals with bearish fundamental biases might consider transferring gold from watchlist to risk management plans, as a technical bearish reversal signal is likely confirmed for the time being.
Additionally, if the bearish moment intensifies this week, a return to the most recent swing lows, which were around $1,933, is possible based on the daily average real range of about $23/day.
The same technical reasoning above should be monitored by fundamental bulls in gold for a persistent upside break before considering removing the metal from the watchlist and beginning work on a long-term risk management strategy.
Given the robust run since testing $1,825 back in October, a break there might attract longer-term technical bulls and propel the market to restest the $2,000.00 big psychological handle this week or next.
So, before thinking about a risk management plan, keep an eye out for these two straightforward technical patterns. What are your feelings on gold, though? Do you have a bullish or bearish leaning?
Please feel free to leave a comment below with your thoughts. We always love to hear what people have to say!
