Gold at the cross-roads

In the previous article, we have pointed out that there are some warning signals gold might head towards a correction. The decision taken by the Chinese central bank on October 19, to hike interest rates by 25bp had been the trigger that tipped the balance. Gold sold off massively that day as the US dollar strengthened against the other major currencies.


The technical indicators, which we follow, all turned negative. The ADX declined after reaching a peak at 67. This indicates that gold is entering a major correction. Most of the trend following indicators like the MACD as well as oscillators like the stochastics triggered fresh sell signals. However, gold managed to close above the moving average line of the Bollinger band. This line often serves as support. Thus, gold would have to stay above this line in order to remain in an upward trend. In the case gold trades below this line, it would open scope for a further decline to the 38.2% Fibonacci retracement at 1,300$/oz. However, more likely would be a test of the lower Bollinger band coming in at 1,280$/oz and then at the 61.8% Fibonacci level at 1,243$/oz. But gold bulls should get aware that for some time the trend might not be their friend.