(Kitco News) - Global stocks are rallying and the U.S. dollar is posting solid gains. In the short-term, gold is being held hostage to outside market dynamics and the risk-off attitude has triggered modest profit-taking in the gold market in Monday trading.
What's happening in gold right now? Gold is consolidating within a large range between resistance at $1,263.90, the Feb. 11 high (basis April Comex gold futures) and support at $1,191.50, the Feb. 16 low. The gold market could begin to carve out a potential "triangle" type formation on the daily chart, which is a common continuation pattern. See Figure 1 below.
What is the short-term trend? The short-term trend bias is choppy and neutral within that large range between $1,263.90 and $1,191.50. Short-term traders may look to that range for short-term selling and buying spots to "play the range." For now, the gold market is "coiling" lower and subsequent highs and lows within the range are narrowing.
Is there a key line in the sand for gold bulls? In the near-term, gold needs to hold above the $1,191.90-$1,191.50 zone to protect the bullish outlook. If that support floor cracks, it will leave gold vulnerable to a more significant downside correction phase. The next minor support point lies at $1,181.60, and that could act as the lower limit to the current range. But sustained declines under these support points would be a negative near-term signal for gold and the recent gains could begin to unravel quickly.
Who controls momentum? Currently, the bears are in control of the momentum picture. The 14-day relative strength index is pointing lower from recently overbought levels. The gold market needs some time to work off its recently overbought conditions and that means sideways consolidation or downside correction. Near-term rally moves could struggle. The gold market needs some time to digest the recent gains.
Bottom line? The current backing and filling in the gold market is normal after such a big move. The market sees strong support around $1,191 and if sustained declines are achieved below that zone it would leave gold vulnerable to a more significant downside correction. In the short-term, choppy trading between $1,263.90 and $1,191.50 is "noise." A rally above $1,263.90 is needed to reignite the bullish momentum, but that is not the favored scenario in the near-term. Long-term gold bulls will need to bide their time and be patient amid the short-term noise.
By Kira Brecht, contributing to Kitco News;
Follow her on Twitter @KiraBrecht
