Gold is extending its decline on Monday, brushing a two-month low of 1,806.45 and testing the bottom of the Ichimoku cloud. The momentum indicators point to further losses in the near term. The RSI has just reached the 30 oversold level, while the %K and %D lines of the stochastic oscillator have both slipped into their respective oversold zone.

This could be an indication that the selloff has gone too far and a near-term upside correction is on the cards, though, the RSI still has some further downside scope and there is yet to be a bullish cross within the stochastics to confirm a reversal.

But should the cloud bottom in the 1,800 area hold as support, the price could turn upwards and head for the 38.2% Fibonacci retracement level of the September 2022-February 2023 uptrend at 1,827.90. A break higher would turn attention to the 50-day simple moving average (SMA) near 1,865, while not too far north is the 23.6% Fibonacci of 1,878.26, which overlaps with the cloud top.

Should the bulls manage to crack above the cloud top, they could then aim for the ascending trendline. Crossing above it would help restore the longer-term bullish structure.

However, if the price breaches the cloud bottom, this would likely increase the downside pressure, setting up a major battle zone for the bears between the 50% Fibonacci of 1,787.19 and the 200-day SMA at 1,776.

A drop lower would bring into view the next big test at the 61.8% Fibonacci of 1,746.48.

In brief, the bulls still stand a chance of restoring the uptrend if they’re able to bounce off the cloud bottom and rally back up towards the ascending trendline. But if gold suffers further losses and falls towards its 200-day SMA, the bullish longer-term outlook, which at the moment is on the verge of becoming neural, would be at further risk and could even turn negative.

Counting on DEMA200 to protect gold from further losses

Feb 27 2023