Gold prices are testing major resistance, but have a positive momentum divergence building beneath the action – let’s see these developments – using the Gold Trust ETF (GLD) as a proxy.

GLD (Gold Trust ETF) Daily:

Before viewing the chart, keep in mind that StockCharts represents the gold price index ($GOLD) with end-of-day data only, so to get the most recent intraday data – or for a vehicle to trade your views on gold prices without using futures – you can trade GLD and receive intraday updates as well if you don’t have access to futures data otherwise.

That being said, price is clearly in a daily downtrend, as price has made a series of lower lows and lower highs in terms of the swing ’structure’ of the market.  We’re now coming off a recent swing low – or one could reasonably argue that a ‘double bottom’ formation may have occurred about the $68 ETF price level (or the $700 per ounce level in gold prices itself).

As such, a clear positive momentum divergence has formed, which is often a precursor to potential reversals as evidenced by comparing the recent price lows to corresponding indicator lows.

Price formed a bullish ‘hammer-like’ candle pattern on Thursday as the market reversed and the ETF gapped up this morning and is currently forming a doji at technical resistance via the falling 20 day EMA.  At the time of this writing, December mini-gold futures (@YGZ08 in TradeStation) are trading near $750 per ounce, which is just shy of the 20 day EMA at roughly $753 per ounce.

Price sits at a critical junction with a decent chance of breaking above EMA resistance and challening perhaps the 50 day EMA (at roughly $790 per ounce in the futures or $78 in GLD).

The overall trend is still down, so we need to take that into account if we’re looking to position for a swing or perhaps even scalp-style trade here.  A failure at these levels with the potential double-bottom and positive divergence would be particularly damaging to the gold bulls, particularly if price swings back to take out the $70 GLD level or $700 per ounce level in gold.  All bullish bets would be temporarily off the table were that to happen.

Let’s watch price at these levels extremely closely and look for continued signs of strength… or resurgence of price weakness via EMA resistance.