Spot gold (XAUUSD) is higher on Tuesday after finding support earlier in the session at $4463.01, which was essentially a test of $4481.78. This is the line that is 20% down from the record high of $5602.23, or the level that separates the bulls from the bears. What the early price action indicates is that bullish traders are bidding on weakness, but not chasing by taking out offers.
If $4481.78 fails then look for sellers to drive the market into the 200-day moving average at $4412.44. This long-term indicator has been successfully tested twice. Once on March 23 when the market bottomed at $4099.12 and again on May 28 when XAUUSD traded $4366.23.
On the upside, the key resistance is the 50-day moving average at $4630.62. This intermediate indicator has also been tested twice. Once on April 17 at $4891.54 and again on May 12 at $4773.58.
The 50-day and 200-day moving averages are compressing, which means both the bulls and the bears are being squeezed. This usually means a major breakout is coming. The question is which direction? The two lower tops has me leaning to the downside. A move through the 200-day MA will also mean the market is on the weak side of both the long-term Fibonacci level at $4541.88 and the bull/bear line at $4481.78.
In order to generate some upside momentum ahead of a 50-day moving average breakout, the market will have to hold the bull/bear level and regain the Fib level.
