However, the rally did not last long. Gold pulled back slightly and is now moving sideways. So the question is… where is gold heading next?
From a bullish perspective, it is logical to argue that gold may continue rising, given that it has already broken a strong downtrend line. This trendline was formed by four touchpoints, meaning there were three prior attempts before the breakout occurred.
Therefore, if gold continues to rise and breaks above 4,995 USD/t.oz, it is highly likely that price will not “look back”… meaning no significant pullback afterward.
However, despite the breakout and the apparent upward movement, there are two key indicators suggesting that the rally lacks strength:
1️⃣ Declining Volume
The price is rising while volume is decreasing. A strong trend is typically supported by increasing volume.
2️⃣ Bearish Divergence
Price is forming higher highs, but indicators are showing lower highs.
This divergence is observed across 5 indicators (MACD line, MACD histogram, AO, RSI & Stochastic RSI)
Let’s see how the gold market unfolds next week.
For now, I still maintain the view that this current rally is a dead cat bounce, unless price manages to break above the invalidation level.
Naim al-Jauhari
