I will start this analysis by telling you that in the past few months, the movements on gold have been a bit, let’s say, weird. Gold is not behaving as it has been over the past few years. The correlation between the USD and the risk ON/OFF mode seems broken. Gold is following its own path. Luckily, technical analysis works in any situation and this is what we will focus on now.
For the past few weeks, gold has had only one crucial resistance, which was the 38.2% Fibonacci of the main downtrend. 38.2% finally got broken. Does this mean that we have a change in long-term sentiment on gold? Unfortunately for buyers, the answer is no. The long-term sentiment remains negative and let me explain why. First of all, we are still inside the mid-term flag formation (black lines). The flag is a trend continuation pattern and it was created after a deep drop, which promotes a further drop. The price is currently bouncing from the upper line of this formation, which only confirms this pattern and my previous sentence. Yes, the breakout of 38.2% is a crucial development in the mid-term, but it doesn’t change the big picture.
In my opinion, we can start being optimistic only after a breakout of the upper line of the flag or after a breakout of the 50% Fibonacci. I think that the current scenario is the price testing 38.2% from the top. In other words, we’re going to get a short-term drop followed by a mid-term upswing.