Gold was trading flat on the week as of Tuesday after it extended last week’s drop on Monday. While not out of the woods, gold may be able to regain its poise and resume higher after last week’s drop, when gold hit a record high before taking a drop to close lower, elaborates Fawad Razaqzada, technical analyst at TradingCandles.
Its failure to hold above the previous record highs of April ($2,431) and May ($2,450) has raised some concern that gold may have hit a peak. However, I am doubtful that is the case and expect the precious metal to bounce back, potentially reaching a new record soon. After all, this is not the first time we have seen such bearish price action before the bulls have roared back.
Last week’s drop resulted in a bearish-looking inverted hammer candle on the weekly gold chart. This pattern, combined with its failure to maintain levels above the previous record highs, has sparked fears that gold might have hit its peak.
However, as highlighted in the chart, gold has exhibited similar bearish weekly price action several times since Q4 2023. In most cases, there has been only modest downside follow-through, with some candles completely engulfed by the next week’s price action, indicating no real control by the bears. Last week’s inverted hammer candle, although seemingly bearish, could turn out to be yet another bear trap.
On the daily timeframe, gold has reached potential support between $2,385 and $2,400, where prior resistance meets the 21-day exponential moving average (EMA).
The 21-day EMA typically offers strong support in trending markets. If this support holds, the bullish trend may continue. However, if it breaks, the next significant support level is around $2,365, where the bullish trend line since February comes into play.
In terms of potential resistance, the $2,450 level is crucial as gold peaked there in May and failed to hold above it last week. Above this, last week’s all-time high of $2,483 and the psychologically important $2,500 level are key targets for the bulls if the bullish trend resumes.