There is a low probability that the current fall below support near $1,180 will immediately lead to a fall to support near $980. Gold has developed a support band between $1,115 and $1,180 so traders expected a new rebound rally to develop from near $1,115. The rally rebound has now moved above $1180.
The long-term group of GMMA averages remains well separated and moving downwards. The rally attempts in March and July in 2014 and this February have been not been able to stay above the upper edge of the long term GMMA. This confirms the strength of the downtrend.
If support between $1,115 and $1,180 continues to be successful then the gold price will continue to develop a sideways pattern. The gold price must move above the upper edge of the long-term GMMA before a new uptrend can develop. The value of the upper edge of the long-term GMMA is currently near $1,250. A breakout above $1,250 can move easily towards the next upper resistance level near $1390.
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However the bearish features on the gold chart suggest there is a higher probability of a future fall below support near $1,150 and a continuation of the downtrend towards historical support near $980.
The bearish outlook is confirmed by two features.
The first feature is the strength of the long-term GMMA group of averages. These averages are not compressing and compression is required before a new uptrend can develop.
The second feature is the long-term downtrend line. This downtrend line acts as a support level in a falling market but the value of support is lower and lower every day; the market slides down the downtrend line until it reaches the horizontal support level near $980.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.