Gold has been having a steep decline for a number of days now and as the metal breaks support after support, it brings into question just where the new low will be. However, evidence seems to be suggesting that the embattled commodity could be about to bounce back. Specifically, gold is likely in the process of completing a corrective pattern which could see the metal move back comfortably within the confines of the recent sideways channel.
As shown on the daily chart, gold has been experiencing some tumultuous trading over the past number of weeks but hasn’t really been able to decide precisely where it wants to go. This indecision is likely to extend into next week and could see the metal complete the next leg in a corrective flat ABCD pattern. Consequently, the commodity will likely descend a little further to test the 1208.61 zone of support before subsequently reversing.
Whilst gold has demolished previous supports with little hesitation, the 1208.61 level is very likely to hold firm. Primarily, this level represents the lower constraint of a very robust sideways structure which constrained the metal until the short-lived breakout at the start of May. Moreover, support here has been tested relatively thoroughly which should limit any losses in the event of another Hawkish announcement from Yellen.
The 100 day EMA provides even more reason to doubt gold’s future downside potential. Looking at the daily chart, the 100 day EMA is acting as dynamic support for the metal and should limit the chance of a downside break out. What’s more, the commodity has recently dipped just below the 100 day EMA which is likely causing a build-up of buying pressure.
In addition to the 100 day EMA, the stochastic oscillator is providing some staunch support and should consequently help gold to reverse. The daily, H4, and H1 stochastic oscillators are all oversold which is a strong signal that the metal is more than ready to make the move higher once again. In this event, the commodity will likely retrace to around the 1280.00 handle which represents the upper constraint of the sideways channel.
Ultimately, gold is highly likely to rebound and it now looks to be the time for the metal to do so. The combined effect of the 100 day EMA and oversold stochastics should be the kick needed to send the metal back towards the upper constraint. In this event, the commodity will begin the final leg of the flat ABCD pattern which should bring gold comfortably back within the sideways structure we have been witnessing for the past number of months.