Gold bounce fading, downside back in focus
Gold has stalled after failing at $4660, with a wedge forming on the H4. But without full validation of the structure, both longs and shorts remain in play.
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For a metal that has behaved far more like something at the outer edge of the risk asset spectrum, it’s notable how heavy gold has traded lately in what’s been an otherwise risk-on environment.
Having been rejected at $4660 resistance on the H4 timeframe late last week, mirroring the performance of other riskier asset classes that delivered notable bearish reversals, and now coiling in a structure that resembles a rising wedge, it suggests downside risks may once again be building.
However, there is still some uncertainty around the validity of the wedge. While there have been multiple tests of the lower uptrend, the upper trendline has seen no interaction, going untested since forming.
As such, I’m not rushing to put on any positions yet, especially with many parts of Asia on holidays on Monday and the price remaining within the middle of the structure, but moves towards either trendline would provide setups to consider.
Source: TradingView
If we were to see a bounce and rejection at $4660, where a bearish pin formed late Friday, shorts could be considered with a tight stop above for protection, targeting $4600 initially where the price bounced from beneath earlier today and, beyond that, wedge support found today around $4580.
A sustained break of the wedge structure would put a potential retest of the April 29 low of $4510 on the cards, with horizontal support at $4560 located in between.
Alternatively, if we were to see a retest and bounce from wedge support, it would open the door for longs to be considered with a tight stop beneath for protection, targeting $4660 initially.
While downside momentum has all but diminished with RSI (14) and MACD now sitting at neutral levels on the H4 timeframe, it’s not like the bulls are in the ascendancy either, with both indicators flattening out in recent days.
The overall message is to put more weight on price action when assessing setups rather than retaining a specific directional bias. The price may be sitting in something resembling a bearish structure, but until the price action confirms, both short and long setups remain in play.
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