Gold traded lower on Thursday after it hit resistance slightly above the psychological zone of 1200, near the downside resistance line drawn from the peak of the 9th of July. Having in mind that the precious metal remains below that downside line, we would consider the short-term outlook to still be negative, and we would class the latest recovery as a corrective move.
If sellers are willing to stay in the driver’s seat, then we would expect them to initially aim for the 1182 support barrier, marked by the inside swing peak of the 16th of August. A clear dip below that level could prompt downside extensions towards the low of the 17th of the month, at around 1172, where another break could set the stage for another test near 1160.
Shifting attention to our momentum indicators, we see that the RSI turned down and fell below its 50 line, while the MACD, although positive, has topped and fallen below its trigger line. It could be heading towards zero. These technical studies corroborate our view that gold could continue drifting south for a while more.
In order to start examining the case for a short-term reversal to the upside, we would like to see a decisive break above the 1205 resistance zone, which acted as a strong support from the 3rd until the 13th of August, when it was broken to the downside. Such a move could pave the way for the next key resistance territory, near 1217. Another break above 1217 could set the stage for more upside extensions, perhaps towards 1227.
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