The price of gold suffered another upside rejection last week as the yellow metal failed to build on recent upside momentum, and eventually met a wall of technical selling around the $1,830 level.
No clear fundamental catalysts have been attributed to the pullback; however, I believe it could be to do with the large amounts of uncertainty towards what is happening with the economy and US fiscal policy.
Gold currently needs to see more inflationary pressure and the pledge that the Federal Reserve will need to keep with its QE programme to encourage the much-awaited push back towards the $2,000 level.
Once we see the type of clarification needed for big players to decide what the FED is going to do we should then expect a long-lasting price trend to stick. For the time being, playing the established range between the $1,750 to $1,830 level seems appropriate.
I will also add that central banks have been purchasing huge amount of gold recently, and data has showed that this year has been an outlier in terms of the amount purchased. This obviously lends short-term support for gold price, meaning dips are probably for buying until the fundamentals become crystal clear as we should run with the marker momentum.
Current sentiment metric towards gold is currently suggesting further short-term losses are likely. The ActivTrader market sentiment tool shows that 69 percent of traders are bullish towards gold.
A drop in bullish sentiment is probably required here as the herd is rarely correct. I think the appropriate time to look for gold strength is when the crowd is ultra-bearish towards gold and probably even silver.
Gold short-term Technical Analysis
The short-term technicals for the yellow metal shows that a complex inverted head and shoulders pattern is starting to form, which could hint those further gains are coming when the pattern is completed.
A break above the neckline of the pattern, around the $1,830 level, could see a powerful breakout in gold, with the $1,950 level being main the target of the typically bullish price pattern.
Gold Medium-term Technical Analysis
According to the daily time frame, gold is struggling to overcome and stage a daily price close above its 200-day moving average, around the $1,830 resistance level. This is the key bullish/bearish marker and main upside breakout spot to watch this month.
On a long-term basis, the weekly chart shows that gold is clearly starting to form a cup and handle pattern, which looks to be near completion.
An explosive breakout above the $1,900 level could prompt a test of the $2,080 and $2,200 level. Overall, keep an eye on the 200-day moving average this week and month.