As the dollar and yields slumped on Friday, gold jumped up by 1.5% with buyers hopeful for another run at the $2,400 mark. But they were dealt a blow in trading yesterday, as the precious metal slumped by 1.4% in what is basically a reset move. In the bigger picture, it sees gold stay in a position where price action remains boxed in.
Towards the end of last month and the start of July, the head-and-shoulders pattern has been one to be wary of. Now, it is starting to look a bit more of a drag as the consolidation phase continues.
In essence, price action looks more trapped inside the box outlined above instead. That is the pattern with most clarity as opposed to the alternatives at the moment, or at least I'd argue it that way.
If I were to pin it, I would say the lower bound is closer to $2,280 with the upper bound at $2,400. A firm break of the latter could finally be what is needed for the upside run to take flight. A case of perhaps the third time being the charm for gold.
As for the downside, we're starting to see the 100-day moving average (red line) draw closer. If price action continues to consolidate through the US CPI report this week, I reckon the key technical level will be a major focus next for gold.
I mean, it already actually is considering it is seen at $2,279 now and close to the lower bound highlighted. A break below that will see gold trade below either one of its key daily moving averages for the first time since October last year. And that will be a real momentum breaker as such.
