Gold has dropped to touch the bottom of the first channel out of the 2 channels we have been watching recently, and it also dipped just a little below the actual bottom before recovering again (please refer to the attached chart). This means that if this area does not hold, we could be on the way lower, towards the bottom of the second channel, around 1238.1!
This is why the area around yesterday’s daily low 1248.4 is now important. But since the price has already traded below the bottom of the channel, we need to be a little more fixable about this low. In fact it is favored that we look for the next support below yesterday’s low and use it as a confirmation for any potential attempts to break lower. The next support is at 1245.5, and only with a break below this level that the bottom of the first channel should be broken. If this break actually takes place, a drop towards the bottom of the second channel around 1234.2 should be expected. On the way lower, we also need to watch the important 1238.1. A break below the bottom of the second channel (which is 1234.2), would seriously hurt the medium term outlook, and although first target for such a break is 1224.6, potential medium term targets are much lower. If we do not find support at or above the bottom of the second channel, we should not be surprised to see gold testing the double bottom base around 1180.4, in the near future!
Resistance
As for the resistance, we are testing the minor level at 1253.0 while this report is being prepared. A break above this level will be a good start, but it will not mean a lot without breaking above the area which has been holding the precious metal down for the past 36 hours. Yesterday’s daily high was 1257.9, and today’s current daily high is 1257.6, and it is this small area that we need to clear in order to recover. A break above this area will target the falling trend line from Friday’s high, which seems to be running at 1263.2. A break above this level will open the way higher towards the short term retracement levels which start at 1266.8, but include more important levels at 1272.5 & 1278.1.
