Gold's remarkable multi-year rally may be losing steam, with technical analysis pointing to further declines ahead.
Click here for a more detailed chart illustrating the bearish engulfing candle.
The first crack in the picture appeared in March, when gold formed a bearish engulfing pattern on the monthly chart. This candlestick formation consists of a bullish, upward-moving candle followed by a larger, downward-sloping candle that completely swallows the previous one. In gold's case, sellers overwhelmed buyers so decisively that the prior month's entire gain was wiped out within a single month.
Technical analysts use candlestick charts to provide a granular view of tipping points between buyers and sellers over a given time range.
Confirmation came in June, when gold broke below its 10-month moving average - a key support level where buyers would typically be expected to step in. That breach dragged gold down to $3,942, a near 30% drop from January's record high of $5,594, according to data supplied by LSEG.
Gold has clawed back some ground in July, but two further tipping points now loom: the 20-month moving average at $3,821 and the 50% Fibonacci retracement at $3,702. Fibonacci levels mark price points a market often revisits after a big move, and the 61.8% level is dubbed the "golden" ratio because it frequently decides whether a trend is truly over. Should both nearer supports fail, gold could fall toward that 61.8% retracement at $3,255.
For the longer-term outlook to improve, gold would need to reclaim the 10-month moving average, now at $4,453.
What the chart shows:
(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.)
