Last week’s fresh all-time highs left many gold bugs empty-hearted.
The market continues to torment precious metal bulls as they wonder what could have been.
But hopes and dreams aren’t a viable strategy.
The only “what if” that concerns me is whether the yellow metal flashed a failed breakout.
Or are we simply dealing with a a premature move?
Let’s dig in…
Check out the weekly chart of gold futures, highlighting the breakout in question:
Bulls sliced through overhead supply, vaulting gold to new heights. But the bearish momentum divergence in the lower pane reveals a lack of fervor for the shiny yellow rock.
Divergences between momentum and price don’t guarantee a major reversal.
Gold can still break out as momentum divergences have a way of righting themselves. That’s why I prefer to focus on momentum regimes. They’re just more reliable.
From a structural perspective, the real nail in the coffin for gold lies just below the right shoulder trough at approximately 1,820. A decisive close below that level completes a failed inverted head-and-shoulders pattern and suggests further weakness.
It’s a similar picture on a more tactical time frame.
Here’s the daily chart:
Gold reminds us of the fractal nature of price action. The abbreviated right shoulder on the weekly chart formed an inverted head-and-shoulders on the daily chart, with an abbreviated right shoulder to boot.
The 1,935 area marks the line in the sand on the daily chart.
Gold bugs can turn their frowns upside down if price bounces at this potential support level.
On the flip side, more selling pressure lay ahead for precious metals and their related stocks if gold undercuts those key pivot lows. And the likelihood of a failed breakout increases.
Meanwhile, the possibility that last week’s move was a harbinger of strength remains plausible as long as price holds above these critical troughs.
