Hello and welcome to this edition of CantosCharts. This is Ashraf Laidi from CMC Markets. We are going to look today at gold and we are looking at this formation here which is basically on the daily chart.

You've got a potential head and shoulder formation here. We've got the head here around $1,378, $1,380 which was just around the peak from mid November and then you've got the higher peak which is a few days after the Federal Reserve finally announced its second round of quantitative easing at around $1,423.

You had a decline and you have a subsequent rebound which failed again with that previous left shoulder which is around $1,370 and it is really giving us a head and shoulder formation.

Basically, the trend line here it sort of coincides with the 55-day moving average and the trend line again starting from the August low.

What is interesting is that when you are looking at this that means that your right shoulder is around $1,385/$1,384 which is really the resistance and as long as we fail to take it out we are going to be retesting the interim support of around $1,355/ $1,353.

If we close below $1,353, it looks like we are going to be heading towards this low here which is the neck line which is around $1,320 and if you take $1,320, minus $1,420, that is $100 and that would be taking $100 out of the $1,320. You are looking at around $1,220 which is here which we are going to be looking at in the weekly chart.

But before we go into the weekly chart, looking at the daily chart and it has quite a negative Stochastic here, a slow Stochastic and this really shows that the downside is likely going to happen and we are going to be retesting, we are likely going to break below that $1,350 and test the $1,320 which is very important.

The weekly chart shows you where are we in the $1,320. The $1,320 is just around here looking quite minor.

But what is interesting is that the weekly chart also gives you a negative Stochastic here and it shows you that the 55-week moving average.

The reason I look at the 55-week moving average is because this 55-day, 55-week moving average has been quite important on the EUR/USD, on the AUD/USD, on the 10-year yield. On all the major instruments this 55-weekly and 55-daily moving average has been very important and the 55-weekly moving average, in an important signal such as gold is around, is below $1,205.

But let's not even worry about this for now. What we can worry about this is the trend line that is right above it which does say that we could be looking at around $1,220, which is, guess what? It's is a confluence with the head and shoulder target of around $1,220.

Am I saying that we are necessarily going towards the $1,220 from the current $1,350 in gold? I'm not necessarily saying that. We're saying that it is very important to see those prerequisites which is really an intra-week break, meaning a daily break in this week below $1,350 and that could take us gradually to the next target of around $1,325/$1,320 and if we do break below that, we're likely to take another $80 from there.

Ladies and gentlemen, this was Ashraf Laidi from CMC Markets and we hope you've enjoyed this edition of CantosCharts.