Since July 15 gold prices have fallen by 20% and then have slightly bounced back. What should we expect now?

All of the intermediary technical supports have been cleared recently, and that’s why a further move on the downside to test the long-term and main support is probable.

First the price action broke down below the 200-day moving average, which had been a previous support in May and June (points A and B on the chart). It has also cleared the 50% Fibonacci retracement level of the bullish trend developed between October 2006 and March 2008 (points C and D). Recently the price action tested the last significant intermediary support which is the 61.8% Fibonacci ratio then rebounded there towards the 50% level. It appears that this 50% level acts now as a resistance (point E).

Indeed, the price failed to jump above $845 last week and since has been slowly sliding back. The fact that the price already declined below $800 is psychologically important.

Before a potential new fall towards the long-term support, there is likely to be a near-term bullish momentum. The MACD just triggered a bullish signal, and the oscillators that determine the overbought/oversold configurations. The RSI is well-oriented such as the Commodity Channel Index (CCI). The CCI is useful to identify potential peaks and valleys in stocks prices and thus to estimate changes in the direction of price movement.

The CCI has posted a new low, a valley point, and has curved upward and crossed above the -100 level, which means that the oversold configuration is over. A further rebound is therefore expected, probably towards the 200-day moving average, currently set around $885.

The medium-term bearish sentiment would be definitely erased if the price succeeds to climb back above $900.

The global picture, however, seems to be an uncompleted bearish medium-term retracement. Clearly, the main objective on the downside has not been reached yet. This target is the long-term support line set at $750. It is a previous resistance line that had been tested several times in 2006 and 2007.

Still bullish on the short-term, the price action may eventually fall back to this support line if the positive momentum fails to build up.

It would be there a good opportunity for investors that are currently uncertain to buy back gold.