Gold has turned increasingly bearish in the short term after the 50-period moving average fell below the 20-period MA last week. Momentum oscillators on the 4-hour chart are giving bearish signals.
After rallying to a more than a 1-year high of 1357.47 on September 8, the rally lost steam as the market became overextended. This was indicated by RSI rising above 70 into overbought territory. Gold prices failed to sustain gains at these levels and consequently fell below an important support level at 1342.68 and the market has been carving out lower highs and lower lows since the 1357.47 peak.
Momentum oscillators are now bearish, with RSI below 50 and MACD below zero, thereby increasing the risk to the downside. The focus has shifted to the key 1300 level which is expected to provide support. From here, prices could target the 1280 level which is the 50% Fibonacci retracement level of the uptrend from 1204.79 to 1357.47 (July 10-September 8). A move lower would increase the bearish view and result in a reversal of the July to September uptrend.
Not much damage has been done to the medium-term bullish market structure but gold prices are expected to stay under pressure in the near-term unless they can reclaim and stay above the 1335 area. Such a move would increase the odds for a re-test of the 1357.47 peak and bring a resumption of the uptrend. For now, the near-term bearish bias is expected to remain.
