Gold demand zone is keeping an eye on bears for the time being

Gold Talking Points:

  • After a volatile start to March, gold prices calmed down a bit last week, with support in an important spot on the chart.
  • The weekly chart of Gold produced an evening star that confirmed last week, opening the door to longer-term bearish themes. Last week’s support has built a bullish channel, highlighting a possible bear flag formation.
  • The analysis in the article is based on: price action and card formations† For more information on price action or chart patterns, check out our DailyFX Education section.

It’s a big week for gold prices. The yellow metal rose in March for fear of the Russian invasion of Ukraine. The war bid led to a strong spike, but gold just failed to test the all-time high printed in the summer of 2020. And that early March weekly candle showed a powerful reversal from that failed high, with the weekly bar closing as a tombstone doji

Next week is what however helped to create the evening starwhile that week’s price action followed even more of that earlier breakout, pushing prices back to the point of origin around the 1900 psychological level.

evening stars are often tracked for the purpose of bearish reversals and that potential persists as we enter a new week and quarter. And as we near the end of the month, the monthly bar in gold is worth a review as it shows a strong reversal after that failed high. If the monthly bar closes in the red, it looks much more attractive for larger picture reversal scenarios going into the second quarter of this year.

Gold Monthly Price Chart

gold monthly price chart

Chart prepared by James StanleyGold on Tradingview

Gold Weekly Chart

From the weekly chart we can focus on the star formation of that evening. The demand zone of interest has some historical relevance, as you can see from the chart above. The 1900-1923 zone is what ultimately produced the highlights of 2011.

And it has also played a part in more recent price action, helping to create support as the breakout began to retreat two years ago, quickly becoming a resistance that held highs in late 2020 and mid-2021. This same zone even created resistance at the end of February, but as wartime tensions mounted, prices removed that resistance, and it now functions as a support and keeps bears at bay after that night of star formation completed.

Gold Weekly Price Chart

Gold Weekly Price Chart

Chart prepared by James StanleyGold on Tradingview

Closer-Term Gold: Bear Flag Builds on Support

The drop to the four-hour chart focuses on that recent test of support in the 1900-1923 area. That support test came into play shortly after the FOMC rate decision, with only a temporary test below 1900 psychological level during the rate decision itself. As stocks launched higher in a recovery move, gold prices brought in something similar, bouncing out of that longer-term support zone.

That bounce has developed in a somewhat orderly fashion thus far, with a bullish trend channel based on that demand zone. This, when taken with the earlier sale, makes for a shorter run bear flag formation

Breaking that flag could give rise to larger bearish themes, with longer and shorter term stances aligning. But sellers should be careful as this 1900-1923 support zone is quite plain and obvious and it may take more testing before it finally collapses.

Four Hour Gold Pricing Table

Gold Four Hour Price Chart

Chart prepared by James StanleyGold on Tradingview

— Written by James StanleySenior Strategist for DailyFX.com

Get in touch and follow James on Twitter: @JStanleyFX

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