Exiting triangle may send gold down to support at $3.930

In line with our expectations, gold prices attempted to form a double bottom pattern and rallied toward October’s highs. However, they failed to consolidate above $4,200 and retreated to the $4,000–$4,050 range. Last week, the precious metal traded between these levels, making a converging triangle increasingly apparent on the daily chart. The chances of an upward or downward breakout appear equal. The most likely near-term scenario is for the price to rebound from one boundary of the pattern to the other.

Gold is now nearing the bottom of the triangle, increasing the potential for a new wave of growth. The Stochastic Oscillator has already issued a buy signal, while the RSI remains in neutral territory. A reversal might occur between $4,100 and $4,150. Opening short positions in this area looks optimal. The next target for bears would be the triangle’s lower boundary. A decisive break below this level would pave the way to local lows near $3,930.

Meanwhile, a stronger greenback is limiting gold’s upside. The dollar index has tested the psychologically significant level of 100 for the first time since early August, despite recent dovish comments from New York Fed President John Williams. This suggests that delayed economic data, which is now being released after the end of the US government shutdown, may be more valuable to traders than policymakers' remarks. Key releases this week include the retail sales report for September on Tuesday, followed by the Q3 GDP flash and the Personal Consumption Expenditures (PCE) price index on Wednesday.

The physical gold market also does not support bullish activity. According to Reuters, traders from India and China keep selling the precious metal at a discount to global prices due to weak demand. Even the start of the wedding season in South Asia has done little to boost jewelry sales. Although prices have fallen from their October peaks, they are still too high by historical standards.

Consider the following trading strategy:

Sell gold in the $4,100–$4,150 range. Take profit: $3,930. Stop loss: $4,200.