Maintain short positions as the bearish bias is still in play. Last Friday, the COMEX Gold rebounded by USD6.80 to close at USD1,235.50, charting a white candle that covered the body of the prior black candle. As a result, a reversal “Bullish Engulfing” candlestick pattern was formed. This suggests that the current correction is nearing its limit. However, until a strong positive follow-through is in sight, we believe that the bearish bias has not been fully negated yet. In terms of strength, the 14-day RSI indicator shows that market sentiment is still weak at 32.53 pts, ie below the 50-pt neutral level. This supports our downside view.

As the sellers are still dominating market sentiment, we think it best that traders maintain short positions. In order to secure part of the trading profits, we advise setting a trailing-stop above the USD1,272 mark. For the record, we made the short recommendation on 16 May. This was after the COMEX Gold’s price dropped firmly below the USD1,309 threshold.

To the downside, the immediate support stays at USD1,217, located at 9 May 2017’s low. This is followed by the USD1,207 support threshold, obtained from the low of 10 Jul 2017. On the flip side, we keep the immediate resistance at USD1,238, or 12 Dec 2017’s low. If this level is taken out, the next support is found at USD1,272, derived from the high of 9 Jul.

Source: RHB Securities Research - 23 Jul 2018