The price of gold is trading at a six-week low as the yellow metal suffers heavy losses after the Federal Reserve policymakers inferred that the central bank could be on the path to raising rates and tapering QE sooner than most market experts had been expecting.
Gold has had a strong inverse relationship with the US dollar, meaning that when the value of the US dollar currency rises then the price of gold is likely to fall. This inverse relationship is now starting to play out.
From a technical perspective the price of gold has now turned technically bearish after closing the daily candle well below its trend defining 200-day moving average, which is found around the $1,838 level.
The technicals are very bearish in the short-term after the yellow metal crashed below the $1,800 support level yesterday. With the metal in freefall, the daily price chart is showing the $1,700 level as the next level of meaningful medium-term support.
The ActivTrader Market Sentiment tool shows that some 74 percent of traders are bullish towards the yellow metal right now, marking a 3 percent increase since the start of this week.
This highlights that retail traders are turning more bullish despite the price of gold tumbling by nearly $100.00 from the highs of the week. Retail traders are often on the wrong side of the market, and more so when very large retail sentiment skews are in place, so gold could be due for more heavy losses ahead.
Gold short-term Technical Analysis
The short-term technicals surrounding the yellow-metal shows that a head and shoulders pattern has been activated, with the price of gold already reaching the target of the bearish price pattern.
According to short-term technical analysis the $1,800 and $1,838 are the strongest forms of resistance. Bears may look for swing sell opportunities until the $1,700 level has been reached.
Gold Medium-term Technical Analysis
According to the daily time frame, gold has fallen back inside a massive falling price channel, which is located around the $1,840 level
I would expect that the price of gold could now head towards key falling trendline support, around the $1,700 support level.
Dip-buyers may be lurking around that area and will need to defend that level to avoid a drop towards the $1,678 level.