The end of 2018 and the beginning of 2019 were excellent for gold, but something changed at the end of February. The precious metal is currently under heavy pressure and the outlook for the future is rather negative. There are various factors contributing to this negativity. Recently, the main factor has been the stronger USD. More recently; over the past two days, that pressure has subsided. There is a new element at play, though, and it comes from the market’s Risk On mode. This risk appetite can be clearly seen on stocks, which are pushing towards new mid-term highs, and that is a mood killer for gold buyers.
The technical situation does not look any better. The H4 chart gives us a very pessimistic view of the future. The price is forming a big head and shoulders pattern. We’re currently in the process of completing the right shoulder. The right shoulder itself is made up of a bearish flag (blue lines), which resulted in a breakout to the downside, increasing the bearish momentum. On Friday, buyers tried a small reversal, but they failed miserably, which in theory should scupper all mid-term bullish hopes. The most probable scenario at the moment is the price heading towards the blue horizontal neckline. What happens after that depends on the price action that occurs there. A bounce should mean a bullish correction and a breakout could provide a long-term sell signal.
It’s worth mentioning the fact that the neckline is slightly above the 38.2% Fibonacci. That line is usually pretty important and closing the day below that support could be lethal. As such, the bulls need to protect this area at all costs.