The dollar price of gold has been in a downtrend for most of this year. It is still in that trend, but we show very clearly what level it needs to break, in order to end its declining trend and trigger a new buy signal.

Gold (dollar) – Short-term vulnerable.

Recommendation: Traders sell short for now.

Trend: Short-term sideways. Medium-term down. Long-term sideways to up.

Strategy: Either sell short at current levels, or wait for a close above line 3 to buy.

n The gold price has been correcting in recent months in a broadening formation (lines 2 and 3). Last week it reversed down off line 3 resistance. It needs to break line 3 ($1 618 an ounce on a closing basis) to get rallying again.

n The short-term stochastic oscillator (on top) is overbought, which points to more downside to come in the short term.

n Right now traders should still be selling short the bounces (it can be shorted at current levels), until such time as it can break out above line 3. If shorting is not your game, then rather wait for a breakout and close above $1 618 (line 3) to buy (that is, go long).

n In terms of targets, for now look for more downside to retest $1 550, and potentially to $1 535. But to the upside, once the buy signal eventually triggers, the minimum target will be $1 710, based on the height of broadening formation 2 to 3 projected up.

n The stop-loss for shorts is a close in the spot price above $1 618. When the new buy signal eventually triggers, place your initial stop as a close below $1 570.

Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, visit for further information.