By Mohammed Isah of fxtechstrategy.com
Gold futures' price action on Tuesday increased the risk of a recapture of the Jan. 22 low at 1,082.10.
A decisive violation of that level would open the door to further downside toward the Dec. 22 low at 1,074.55.
Although the commodity retains its broader longer-term uptrend, there is immediate downside risk. This follows the failed corrective recoveries on Jan. 11 and the loss of momentum at the 2009 high of 1,226.
If gold trades below 1,074.55, it could face further downside pressure toward its longer-term rising trend line, which is currently at 1,061.63.
We expect that a combination of these two levels should turn back the commodity on an initial test and possibly generate a corrective recovery.
However, a break and hold below the 1,074.55 swing low will put the commodity in a newly defined downtrend with a pattern of lower highs and lower lows. Also, a failure of that level will mean the commodity will target stronger supports at 1,030.85/1,026.55, the March 2008 high/Oct. 28 2009 low.
Losses of these levels, if seen, will then create additional weakness toward the Oct. 2 low at 986.67.
The daily relative strength index remains clearly pointed to the downside, suggesting further weakness.
If the commodity begins a recovery higher, however, the first target should be 1,118.35, the Jan. 13 low, ahead of 1,168 level, the Dec. 8 high. On the whole, gold remains biased to the downside and now looks to head further lower toward 1,082.10/1,074.80.
Mohammed Isah is a technical strategist and head of research at FXTechstrategy.com, a technical-research Web site. He has been trading and analyzing the foreign exchange market for the past seven years. He formerly traded stocks before crossing over to the forex market, where he worked for FXInstructor LLC as a technical analyst and head of research before joining FXTechstrategy.com. He has written extensively on the forex market and technical analysis and his articles have been featured in The Technical Analyst Magazine, The Forex Journal Magazine, The International Business Times and FXstreet.com. At FXTechstrategy.com, he writes daily, weekly and long-term technical commentaries on currencies and commodities, which are offered to its clients. He also produces
for his subscribers. He provides full coverage of the forex market with specific focus on G10 currencies as well as the commodities markets, with focus on five key commodities.