Gold prices corrected sharply this week, breaking an upward swing and ‘breakout trade’ pathway, falling just shy of its estimated $1,000 target from the recent triangle breakout pattern.

Gold prices (per ounce) daily:

There are certainly a couple of ways to draw this triangle (is it ascending?  does the trendline start at the March $1,000 high? etc), but the fact is that price did violate the upper boundary and was surging on its way to a fulfilled ‘break-out trade’ mode.  Recent stock market strength among other factors contributed to this recent - somewhat unexpectedly ‘violent’ - downswing.

Gold prices did form a ‘flat divergence’ with the most recent upswing, meaning that this development was not absolutely a surprise.  Flat divergences occur when price makes a clearer higher swing high, yet the momentum oscillator makes an almost identical swing peak (fails to confirm the higher high).  These divergence patterns are not as strong as true negative divergences, but they are warning flags indeed.

The semi-shooting star pattern (candle) at the peak didn’t add to the bullish camp’s argument.

This is a lesson that we need to constantly follow price action for continued signs of strength or of emerging signs of weakness, and not let our overarching bias, trade position, or analysis blind us to up-to-the-minute observations and occurrences in price behaviors.

Right now, the structure seems to favor support about the $910 to $920 area - $910 corresponds with the prior break-out zone (which has already been tested, but subsequent tests may be more likely to fail) and $920 corresponds with the 50 day EMA ($923.43 to be exact).  A break beneath $910 per ounce would set-up a ‘magnet trade’ to the $880 - $890 per share level.

Price faces a critical juncture in the next few days which we need to watch very closely.