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Gold broke the neckline of its head and shoulders reversal pattern on 5 September (see 4 hours chart, below) and the price rebounded before making its way down towards current levels, just above $1330/oz, reaching a three-week low. This is the completion of the minimum profit target for this trade.
Given that on the daily chart we have seen a breakdown of the channel since its $1180 lows, there has been considerable test of bullish sentiment felt since 28 June. The fact that it has fallen back below the 50 and 100 day moving averages adds to this.
The level to watch from a Fibonacci perspective is now $1325, as it represents the 23.6% retracement of the entire move from the October highs of $1796 to the $1180 lows. Any pullback through this, specifically on a daily close, opens up a possibility of a return to $1315.
The tapering of US Federal Reserve asset purchases is expected this month, though is by no means a foregone conclusion, and the consensus figure of $10-15 billion being shaved off the current $85 billion monthly bond buying is doing little to help any upside.
Only a break back above the $1350 level and then the $1415 level would support a proper recovery in the gold price at this point. Therefore we can expect to see $1350 act as a barrier to upside gains, with the 200 period moving averages coinciding.