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The Chart Will Reveal Gold’s Next Move: Pro

Gold is searching for direction.

Gold followed up on Friday's near-$40 swing lower by stabilizing above major support, and August gold futures retested a high of $1,416.5.

A surprise contraction in the ISM Manufacturing Index led to a lower dollar and thus stronger gold, as traders felt more comfortable that the Federal Reserve will maintain its easing policy.

Indeed, as data have become more mixed, the likelihood of seeing a curtailing of the bond purchasing program diminishes. On Monday, Atlanta Fed President Dennis Lockhart maintained that the central bank is committed to its bond-buying program, bringing further support to the metal.

However, the market is still in a range, and will not only have a tough time making new highs above $1,421.60, but also following through and closing at that level. The highest marked close we have seen was on May 30 at $1,412, which is still below the major retracement level.

Gold was trading right around the psychological $1,400 level on Tuesday morning, as traders continued to play the range. Use $1,396.20, slightly below the morning's $1,397.70 low, as a major support on Tuesday. However, with the large ranges we have seen recently, it is likely that we will see a dip below $1,390. Only a close below $1,380 to $1,383 will confirm a failure, and likely signal a follow-through down to a range of $1,364 to $1,367.70.

_ Rich Ilczyszyn is Founder and CEO of iiTrader. Follow him on Twitter: @iiTrader

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