Even though Gold has reached a new 5 month high, bullish momentum remain unconvincing as yesterday's rally appears to be much more muted compared to movement in stocks and currencies. Considering that stocks suffered the largest drop in 5 weeks, we should have seen prices at the very least test 1,375 resistance in a more meaningful manner. Instead, prices failed to even climb above the ceiling of the consolidation zone that was in play just a few hours before.
It was only much later during Asian hours today that prices managed to break above the consolidation ceiling, but bullish momentum did not last long with prices quickly reverting lower once again. Currently prices have recovered slightly but it remains to be seen whether a push to high 1,370s is possible with Channel Top (see daily chart below) providing resistance given that bulls have been lack lustre to say the least.
Nonetheless, there are technical signs that support a push higher. Stochastic curve has reversed and crossed signal line, and even though readings did not enter the oversold region there are recent precedent when such a signal proved to be rather reliable. Also, one could draw a small channel to represent price action in the past 36 hours and prices seem to have rebounded off Channel Bottom which opens up Channel Top as the natural objective next.
That being said, considering that bullish momentum is weak, and with the week drawing to a close we may see traders who have been holding onto their long positions wishing to take profit as upside momentum is not looking so hot right now. Furthermore, with the Crimean referendum happening over the weekend, we could see a sharp bearish reversal in prices depending on the referendum outcome. On the other hand, even if the outcome is favorable for Gold prices to rally, actual reaction may me more muted similar to what we observed yesterday. Hence there will be more incentive for traders to clear out their long position before the event risk, increasing downside possibility later today.
Daily Chart
