Gold bulls are now holding above the key level $1755, while trading within an important intraday breakout pattern. Probabilities continue to favour failure into $1755 and most importantly $1810. This is further signaled by recent DeMark™ exhaustion signal (which has appeared on the daily chart)

We have opened a sell-stop strategy in anticipation of this near-term downside risk which would trigger a sharp decline back into the old trend-line and 200-day average, both holding around $1650/53.

Moreover, a sustained confirmation beneath here would resume risk for a much larger decline that we have been anticipating, if a weekly close beneath $1530 is confirmed. Keep in mind that our cycle analysis continues to highlight initial targets into $1460 and $1300 (see top-left chart insert).

Speculative (net long) flows also support this view having previously breached a key downside level which may threaten over 2-years of sizeable long gold positions. This would trigger a temporary, but dramatic setback that would ultimately offer a unique buying opportunity into this coming summer of 2012 (chart not shown).

Only a sustained confirmation above $1810 will put the bearish scenario on hold and offer further extended recovery higher on gold.

Daily Technical Report