I’ve been commenting both on the open blog and to members of the Weekly Intermarket Report of the “heavy” chart appearance in gold, as evidenced by the negative divergences and ’rounded reversal’ structure, and now we are seeing the aftermath of these bearish chart developments.

Let’s take a look at the current daily and weekly structure of gold prices, and note what level is most important to watch right now.

First, the daily chart:

I first called reader attention to the bearish chart formation in gold in my recent post:

“Gold’s Strange Top-Heavy Chart and Negative Divergences”

Gold is actually performing right as expected according to the negative divergences – so nothing is out of the ordinary yet.

I referred to it as “strange” because there is so much bullish sentiment in gold, but the objective evidence from the chart hinted otherwise.

Right now, we are testing the 50% short-term Fibonacci retracement at the $1,155 level, along with a minor prior price high from April and January 2010 at the $1,160 level.

Underneath price is the rising 200 day SMA which has been the initial target I’ve been highlighting as a likely place for price to travel if further downside action appeared – which appears to be the case.

The 200 day SMA currently rests at $1,145.

Let’s turn now to the weekly chart to note one more important level to watch in the event that sellers maintain the upper hand and continue to push prices under the key support at $1,160 level where we are now.

Interestingly enough, there is an intermediate term rising trendline connecting the 2009 and 2010 swing lows as drawn that terminates right where we are now at $1,160.

As such, that will be the “make or break” trendline to keep your eye on – a break under the trendline almost certainly sends price to test the 50 week EMA at the $1,120 area – though from a trend standpoint, the breaking of an intermediate trendline is a big deal.

Any move under the key level of $1,100 puts gold bulls in further jeopardy, though technically this current down-move is a retracement against a long-term uptrend.

I explain more of this as well as additional analysis/levels to watch in the Weekly Intermarket Reports.

Just like stocks at overhead resistance at 1,120, what happens here in gold is of utmost importance to determining the next likely pathway forward in price for these markets – both of which rest at “make or break” levels.

For reference, to those trading the SPDR Gold ETF (NYSE:GLD), the daily chart level to watch that corresponds with $1,160 is $114 (we’re under that) and the 200 day SMA in (NYSE:GLD) is $112.06 (likely target on a further down move).

On the weekly chart, the corresponding 50 week EMA in (NYSE:GLD) is currently $109.77 – or $110 for easy reference.

Written By Corey Rosenbloom, CMT From Afraid To Trade  

My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.

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NYSE:GLD