The Gold Dilemma
Gold recently experienced a surprising collapse following a record high. The sudden downturn caught many off guard, with no clear signals from short-term or daily charts hinting at the impending correction. While some attribute the shift to a stronger PMI number, the dollar’s modest movement against other currencies suggests a more complex narrative.
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Last week, the market slipped below the previous week’s low of 2332, creating a significant bearish engulfing candle on the weekly chart. This scenario, known as a bull trap, occurs when a new high is followed by a drop below the prior candle’s low, trapping optimistic investors. Despite closing slightly above 2332, the bearish engulfing candle looms prominently, hinting at potential bearish sentiment moving forward.
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While this occurrence doesn’t serve as an immediate sell signal, it serves as a cautionary sign that the bullish trend might be losing steam. The market could enter a sideways consolidation phase, though a dip to 2310/00 seems probable as the week commences. Observing the pattern that ensues will be crucial in determining future market movements.
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Notably, the distance between last week’s peak and the April high makes a double-top pattern less feasible. This observation tempers the negative outlook that could have prevailed otherwise.
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Despite hopes for a recovery, Friday saw limited gains, with apprehensive short-term bulls caught in losses. The market peaked around 2350/55, falling short of earlier expectations at 2347.
Silver Facing Similar Challenges
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Silver encountered a breakdown below the suggested buying range of 3100/3080, triggering stops under 3050. The subsequent decline led to a low of 3010/3000, which coincided with the anticipated support level. Long positions now require stops below 2970.
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Target levels for long positions stand at 3055/60, with a potential stretch to 3095/99.
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A further dip below 2970 signals a sell-off, aiming for 2930/25, possibly extending to robust support at 2900/2890.
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