When I wrote my last analysis on June 16, gold had just hit its 2011 downtrend line and had failed to break through. As a result, it was falling.
I expected it to go down further...and that's exactly what happened. But it took a while to get there.
On the 20th, it appeared that gold was staging a rally at a new uptrend line that had been created out of the “false breakdown” of May 4-17.
But this rally was short-lived. As soon as the 10 and 21 EMAs made contact with the new trendline, it was invalidated.
The price then crashed through the 200 SMA with ease and stopped near the bottom of the range at $1218.68. Gold bulls must defend this line at all costs or else the price is likely to fall all the way down to the 2005 uptrend line at around $1155.
If you've been paying attention to the financial media, you've probably heard a lot about “central bank hawkishness” lately. Supposedly, all of the central banks of the world are now planning to tighten financial conditions in order to “normalize” interest-rates. And this should be bad for gold because gold has no yield.
Many analysts have claimed that this is the reason why gold is falling in price. However, technical indicators have been showing that gold was ripe for a fall since mid-April.
For the past six years, gold has always fallen whenever it has struck the top of the symmetrical triangle it has been trading in. So this decline really is not out-of-the-ordinary.
Of course, I'm not saying that central bank hawkishness has nothing to do with the decline. It's unclear how you could prove that one way or another. But what I do know is that gold is likely to rebound once it hits the bottom of the triangle.
If the bottom of this triangle is broken, then maybe it will be caused by “central bank hawkishness”. But until we see that, we have to assume that the bottom is still intact and that what we are seeing is just a retreat on technical grounds.
As long as gold stays near the top of the triangle, we can expect more bearishness. So looking for shorts is a good plan of action right now.
A move up to the previous trendline at around $1245 can produce a nice 2:1 reward vs. risk by shorting, with a stop at 1256.47 and a TP at $1216.14 (near the bottom of the range).
If the bottom of the range at $1216.23 is broken, the 200 SMA at $1234.90 can be used as a stop, with a TP at $1159.90 (near the bottom of the triangle).
Also, keep in mind that non-farm payrolls is coming out on Friday, the seventh. And unemployment and CPI numbers are being released on the 13th and 14th. We should see lots of volatility on these days and plenty of trading opportunities.