More downside for gold?

In tandem with our expectations, gold broke below $1,900 yesterday and established a new low slightly above $1,893. That is normally described as a bearish development. However, we previously emphasized that the declining volume accompanying the declining price raises questions about decreasing selling pressure. With volume ticking up near yesterday's low and subsequent rebound in the price, we think that some investors might be already getting back to the market. Despite that, technical indicators on the daily time frame point to the downside. As a result, we are not yet turning bullish on gold in the short term (though, in the long term, we stay very bullish). There is still potential for gold to drift below its yesterday’s low and continue lower, toward $1,875. What we would be looking at in such a scenario is how quickly new dips would get bought by investors. In our opinion, gold below $1,890 will attract new buyers, which might finally halt the selling pressure completely. Consequently, we continue to think that it would be rational to wait a little bit longer before adding more gold to our portfolio.

Illustration 1.01
Illustration 1.01 portrays the daily chart of XAUUSD and two simple moving averages in a bearish constellation. Below the gold’s graph is RSI. It can be seen developing a bearish structure; if it continues and breaks below 30 points, that will be very bearish for gold. In such a case, we might expect these developments to be accompanied by a strong selloff. Although if RSI starts flattening and the price begins retracing toward its 20-day and 50-day SMA, it will be a slightly positive sign.

Technical analysis
Daily = Bearish
Weekly = Bearish

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.