Gold: Approaching crucial resistance zone

Gold Monthly Chart (Chart source: Tradingview)

After breaking the $1,500 major support in 2013, gold came under immense selling pressure, tumbling towards the psychological $1,000 level over the course of the next two-and-half years.
Since then, the yellow metal has gradually inched higher and now stands at $1,330 per ounce. Despite the headwinds such as benign inflationary pressures and strength among global equities, gold has managed to climb more than 25 percent from its troughs, underpinned primarily by dollar weakness that has supported commodities in general.

In the short-term, given that gold has advanced nearly 8 percent in just over a month, a breather cannot be ruled out. The rally off the Dec'17 bottom has halted right near 0.88 fibonacci retracement of the fall from $1,357 to $1,236. Minor support is now seen at the immediately preceding bottom of $1,324. Break below this, I believe, would extend correction towards $1,290, which is the confluence of the 200, four-hourly moving average and the 0.50 fibonacci retracement of the rally from $1,236 to $1,339. Alternatively, if $1,324 support is not broken, focus will again shift to the upside, towards the major $1,375-1,380 resistance zone.

Looking beyond the short-term, gold seems to be carving out a base. After the 2015 bottom, gold has been in a gradual up trend. The entire price formation from Jun'13 till date represents a basing formation. Technically, this pattern represents an inverse Head and Shoulder, as can be seen in the monthly chart above. Furthermore, the decline from the record peak of $1,920 halted right between the 0.618 and 0.786 fibonacci retracement of the rally from 2008 low of $682 to 2011 high of $1,920. The rebound off fibonacci supports coupled with a basing pattern that has been forming over the last four-and-half years suggests that a price bottom could already be in place. A break above $1,375-1,380 range will confirm this and suggest that a long-term bottom is in place for the yellow metal. The width of the inverse Head and Shoulder pattern is approximately $340, so the price objective in case gold breaks above $1,375-1,380 range is around $1,720, which also roughly coincides with the 0.786 fibonacci retracement of drop from $1,920 to $1,046. Major support for gold is at Dec'16 low of $1,120. Only a break below this level would suggest that the correction from the record peak is not yet over and signal at further price declines. Until then however, the bias is skewed to the upside.