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Gold price could see more downside

GOLD price has been enjoying a slight reprieve over the past month following a meteoric four-month fall which started in April this year. Prior to the fall, gold was trading near the 2018 high of US$1,366 per ounce.

After failing to break above this mark, gold prices plummeted largely due to renewed strength in the US dollar, buoyed by a resilient US economy and historically low unemployment rates.

The decline in gold prices came to a halt in August 2018 but not before creating a 20-month low which saw gold prices in the region of US$1,160 per ounce. Price has since rebounded and is currently hovering around US$1,220 per ounce. Looking at the weekly charts, there could be more downside in the mid to near term.

Using a Fibonacci retracement against the downward move starting from the high in April 2018 to the low in August 2018, the recent upward move was arrested at the 38.2 per cent retracement level which has since proved insurmountable in the short term.

Though gold is moving in an upward equidistant channel, gold price has arrived and tested the upper band of this channel. If gold is unable to penetrate this barrier, it could take the path of least resistance and move further south.

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When looking at the rejection reaction of gold within the equidistant channel and Fibonacci levels, there is a possibility of gold price moving towards the lower band of the equidistant channel.

Further support of this possibility can be charted through applying a stochastic oscillator. This indicator provides a sense of market sentiments in terms of whether the instrument is edging towards being overbought or bordering on being oversold, either of which could potentially see price head the other way.

Currently, it can be seen that gold price is toeing the 80 percentile mark which is representative of an overbought sentiment. If gold price were to tumble from here, its immediate supports would be US$1,206 and US$1,200.

However, if price were to break through the lower band of the equidistant channel, we could see gold test its fall against the recent low of the year created in August 2018.

  • The writer is senior strategist, Phillip Futures

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice

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