Gold can be a fun commodity to keep an eye on, as it can have some pretty volatile moves intraday. The price action we have been seeing in gold recently is a great example of why it’s important to be patient.
I’ve looked at gold a few times over the last year, for example in July when it was breaking out of a pennant pattern to the upside, back in September when the shiny metal looked like it might be topping out, and most recently in early January when it appeared that gold was reaching an oversold level near the $1640 area. But today what I’m seeing is the commodity is stuck between tight levels of resistance and support.
Gold looks like it’s in a quagmire, traders don’t seem to have enough conviction to have any type of substantial move. On the upside we have the 50-day moving average (green line) which we saw a false breakout above back in November before continuing the down trend and again in mid-January but buyers were batted down back near the lows. The 38.2% Fibonacci retracement level sits at $1676, which acted as a nice level of support back in early November but now is giving bulls some grieve.
On the downside we have the simple 200-day moving average (blue line). In January it doesn’t seem the 200-MA held very much significance as traders batted the price of gold around the moving average, however over the last week it appears to be the critical level for buyers to step in and hold. When we turn our attention to momentum we don’t seem to find much bias. The Relative Strength Index has found a home near 50 and neither bulls nor bears are able to push it in either direction.
Going forward patience will be a virtue. Unless your day trading the intraday moves of $gold or $GLD then it may make more sense to sit on your hands and wait and see how this battle of support and resistance plays out.
Andrew is an investment analyst for a firm in Indianapolis and specializes in technical analysis.