Is Gold Setting Up For A Bearish Breakout?

December gold futures are turning in a bullish U.S. session, posting a formidable retracement on Monday’s selloff. If you capitalized on my colleague Arslan’s previous winning recommendation for a gold short, great work. There is also a long-term gold signal on the board that is performing well, trading heavily to the green.

The trading signals here at FX Leaders cover an extensive variety of asset classes, including gold, oil and the majors. Be sure to check them out for daily trade setups.

For now, let’s dig into some of the gold technicals and take a look at what may develop in coming sessions.

December Gold Futures-Technical Outlook

December gold futures are up around 60 ticks for the session after putting in a test of the Daily SMA. It is a bit unusual for us to see such concerted strength in bullion amid a rush into U.S. equities. Even in the wake of today’s positive Home Sales and Redbook reports, investors are buying gold.

December Gold Futures

In my opinion, we are seeing some defensive hedging in gold due to the short trading week. Perhaps this morning's rally is a result of various portfolio management techniques?

Realistically, only the institutional money is aware of that. However, the late U.S. session will give us some hints on what is likely to transpire during Wednesday’s session.

Currently, December gold’s range is consolidating between the Bollinger Band Midpoint (1281.9) and the Daily SMA (1276.8). Trade is firmly inside of Monday’s range as well as October’s range, both signals of price tightening in an attempt to identify fair value.

Overview

The remainder of today’s session will tell us a lot about the gold market for the intermediate term. A break below support and Monday’s low is likely to bring some heat to this market. If this scenario unfolds, I will be scalping shorts from 1274.0 looking for 10-15 ticks very quickly.

In the event that today’s range does not extend past Monday’s low, we could be in for a bearish break below support for tomorrow's session. A run to the October double bottom is likely to follow in the near-term.