The price of gold tumbled sharply on Friday as the yellow’-metals inverse correlation with the US dollar once again came into play. Gold fell back towards the $1,870 price area after bulls failed to overcome the $1,900 level.
Broad based gains in the US dollar against a basket of top-tier currencies and falling treasury yields caused a major price plunge in gold. This week’s FOMC meeting should be supportive for the price gold, although the metal is likely to face more volatility in the interim.
From a technical perspective gold is still bullish, making price dips very attractive towards the $1,850 to $1,830 area this week. Gold’s key 200-day moving average is another important area to watch this week, around the $1,938.
Going forward, sentiment surrounding gold could be a big problem for bulls in the short-term. According to Kitco’s gold survey Wall Street is currently neutral towards the price of gold, however, Main Street is resoundingly bullish towards gold. Historically, Wall Street has had the edge in predicting price trends.
The ActivTrader Market Sentiment tool shows that some 71 percent of traders are bullish towards the yellow metal right now, marking an 11 percent increase since last week. This is not typically a good sign.
This is the second double-digit increase in bullish sentiment towards gold, is very worrying, as retail traders are often on the wrong side of the market, and more so when very large retail sentiment skews are in place.
Gold short-term Technical Analysis
The short-term technicals surrounding the yellow-metal show that a head and shoulders pattern is looming over the metal, with the price of gold edging closer to neckline support, around the $1,860 area.
According to the size of the bearish pattern the price of gold could fall towards the $1,800 level if it reaches its full downside potential. I have to say personally, I would expect any dip towards the $1,830 level to be quickly bought.
Gold Medium-term Technical Analysis
According to the daily time frame, gold could stage another key technical test towards the top of massive falling price channel, which is located around the $1,850 level
I would expect the technical test to survive. Multiple daily closes under the channel would be a concern, Although eventually I expect $1,975 and $2,010 levels to be hit on the way to the $2,070 level.