Gold Has Formed the Perfect Bearish Reversing Pattern on the Monthly Chart

Posted Saturday, April 20, 2019 by
Skerdian Meta • 3 min read

Last year we saw two major trends in GOLD. At the beginning of the year, Gold started turning bearish after it failed to break the 100 SMA (green) on the monthly chart and the resistance area which start from $1,345 and stretches up to $1,375. The price formed a couple of doji and upside-down hammer candlesticks which are bearish reversing signals after the previous uptrend which lasted during the entire 2017.

The downtrend started in spring at $1,365 and lasted during H1 2018 until it bottomed in August at $1,160. Then we saw a reversal in Autumn which at first looked like a retrace before the next move lower. But, in December and January this year the bullish momentum picked up pace and that weak reversal transformed into a proper bullish move.

The reason for the climb in Gold prices was the economic slowdown which spread across the globe, first having started in China. I would say it started in Japan since the Japanese economy was weaker before the Chinese economy started to head south, most probably due to Donald Trump’s trade tariffs on Chinese goods, but Japan has been in a weak spot in what seems to be forever.

Gold looks Bearish on the Monthly Chart

Anyway, the sentiment started to improve in financial markets at the beginning of this year as the trade war between China and US draws close to an end. Both sides are still in intensive negotiations, but most market participants are convinced that a deal will be struck between the two giants, which has turned the risk-on sentiment. During such periods when markets feel more eager to take risks, safe havens suffer. USD/JPY has been on a constant uptrend as the JPY got sold off since January 3rd, following the crash in the first two days of this year.

At the same time, Gold has been turning bearish and has lost around $70 so far. Gold formed a doji/spinning top candlestick in February which was the first sign that the price might turn bearish in the coming months. That happened below the lower resistance level at $1,345, which is the beginning of the resistance zone that stretches all the way to $1,375, as we mentioned above. The stochastic indicator was also overbought at that time, which meant that the bullish move was complete. The following two monthly candlesticks look bearish, so the chart setup looks set now for a bearish reversal, which is already underway.

Gold has formed a small downtrend in the last few months

Switching to the weekly chart, we see that Gold reversed after forming an upside-down hammer candlestick at the top and it is already forming lower highs. This is a sign that the trend is shifting to bearish because the buyers are giving up lower each time when they try to get things on their hands. A support level formed this year around $1,280, but that support was broken this week, which confirms the downtrend. Although, there are still a couple of moving averages which Gold sellers have to break for the downtrend to continue.

The 100 SMA (red) stands ready to provide resistance first at $1,267 and then we have the 50 SMA (yellow) at $1,256. These two moving averages should be broken so the bearish trend can unfold in full. But, the stochastic indicator is oversold in this time-frame already, which means that sellers might be getting exhausted. So, there’s a possibility that we might see a bounce higher, probably to the declining trend line which would be a good opportunity to open a long term sell trade here. But, let’s see how it goes; if a retrace higher occurs, then we are ready to short GOLD.

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