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Gold Tests Downtrend Resistance As Dollar Approaches Breakout Support

|Includes: GDX, SPDR Gold Trust ETF (GLD), SGOL

Gold reversed large early gains to close near unchanged today, beginning a test of resistance at the upper boundary of the downtrend from February.



The Gold Currency Index (NYSE:GCI) continued its test of congestion resistance in the 41.60 area following its break above downtrend resistance last week.



Technical indicators are slightly bullish overall on both daily charts, tentatively favoring a continuation of the rebound from mid-May. However, it remains to be seen if this advance is the start of a sustainable uptrend or simply a brief oversold bounce. Gold formed a confirmed intermediate-term cycle low (ITCL) during the week ending May 25, but the downtrend from 2011 remains in control for the moment.



The long-term correction has the potential to develop into a bullish consolidation formation, but the current rebound would need to achieve certain objectives during the next several weeks in order for that scenario to become likely. The intermediate-term view of the US dollar index remains extremely bullish following the confirmed breakout from the consolidation formation in late May.



The dollar has been consolidating recent gains during the last several sessions, but it continues to hold above new congestion support at previous highs of the uptrend.



Although the latest intermediate-term low in gold has been confirmed, it is too early to conclude that the secular bull market is preparing to resume, especially given the extremely bullish character of the intermediate-term uptrend in the US dollar index. It will be important to continue monitoring both markets closely during the next several weeks for the next signals with respect to long-term direction. We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers. Try our service for free.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.