Gold is approaching a potential turning point that could decide whether it extends this year’s losses or makes a stand that could facilitate a recovery.
Gold’s troubles started early this year when its price rocketed sharply higher but then plummeted rapidly on January 30.
Technical analysts refer to such price action as a blow-off top, which often marks the peak of a rally. Since then, gold’s attempts to recover have been characterised by progressively lower highs, a key sign of a bearish trend.
Gold’s losses have dragged it down near its 200-day moving average of about $4,394, according to LSEG data.
Technical analysts use moving averages to clarify trends by stripping chaotic moves out of price action. The 200-day moving average plays a particularly significant role in helping traders discern potential long-term trends. The significance of gold’s 200-day moving average is enhanced by its proximity to a series of highs near the October peak of $4,381.21 and its lower Bollinger band near $4,417. Past highs are important milestones in technical analysis.
Bollinger bands are used to assess volatility and gauge momentum.
A decisive move below the area marked by the October peak, lower Bollinger band and 200-day moving average would raise expectations that gold could fall to $4,097.99, the low for the month of March, or even lower.
However, price action and other technical studies indicate that there is a fight between bulls and bears over this territory.
A move back above this month’s high of $4,773.14 would diminish expectations of further losses and might lay the groundwork for recovery.
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