Gold: Top or Breakout?

FX_IDC:XAUUSD   Gold Spot / U.S. Dollar
Gold exceeded the key high set last September, but has since backed away. Thursday printed a rejection of the high, and Friday confirmed that rejection. Since Gold has climbed in January, we have been losing momentum. This, and the bearish divergence in the Stoch/RSI makes it difficult to initiate a long trade here.

Taking a look at Silver - not shown - we can see that Gold has led this rally. The Gold:Silver ratio has actually risen in January, starting the year at 76 and peaking at 79. In true precious metals bull runs, silver leads. This again gives me some pause. Of course, there are times when Silver lags and then overtakes Gold , which marks the true beginning of a rally. This cannot be ruled out.

I'm constructive on Gold for 2018. Gold would have to fall below 1250 to alter this view.

In the near-term, Gold needs to hold the blue uptrend line, currently around the 1328-30 level. Preferably, we don't get there and we keep going. At this key resistance point, such a scenario might provide an explosive move higher, as people who waited on the sidelines get impatient and starting buying.

Ont he other hand, if we do get to 1330, this would allow weak longs to enter and crowd the trade - would we then have the power to rocket higher?

For now we have to see what pattern forms. I still recommend buying the dip, in the hope that a consolidation forms, which would coil Gold to spring higher. Otherwise, we are currently in danger of testing deeper support. In that scenario, I am betting that the purple horizontal area will be well bid.
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