Yesterday, as gold continued to head lower, it breached a line closely watched by traders: the 200-day moving average.
Today, gold is rebounding a bit, but futures are still trading a few bucks below the line:
A breach below this line is an indicator of bearish sentiment. As the zoomed-out chart below shows, gold has only fallen below its 200-day moving average twice in recent years – and both times, substantial further declines followed (click on the chart to enlarge):
However, traders are looking for “confirmation” of this possible shift before they place bearish bets – which is why today’s session and the next few will be so important to watch.
This is one of the most fundamental concepts for practitioners of technical analysis. Right now, gold is trading about six bucks below the 200-day moving average, and if gold bulls can’t push it back above that line soon, it could mark a turn in sentiment and send prices considerably lower.
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