Precious metals have lost much of their momentum from May trading but while silver has retraced the upside move by quite a bit, gold is still pretty much in consolidation territory. Granted, the run higher in gold largely came earlier in March and April. In May, gold threatened fresh record highs above $2,400 but ultimately settled lower during the month. So, where does that leave us now?

Even as major central banks are kicking the can down the road on rate cuts, gold is still holding up quiet well as of late. I mean, such sentiment is also reflected in equities, so it speaks to the broader market sentiment as well I guess.

That being said, gold’s surging run higher in March and April might be calling for a further correction down the road. And I still hold that view until today. I’d view such a retracement to be a healthier one for gold in the bigger picture. Not to mention, that will be another opportunity for dip buyers to get in on the action.

And while gold has been lingering between $2,300 to $2,400 mostly as of late, the perceived resilience may be a deceiving one if you go by the technicals.

As seen from the daily chart above, we can note that a head-and-shoulders pattern is emerging.

The most important part of that is the neckline around $2,280 to $2,295. As such, if we do get a break of that as the next key move in gold, the target looks to be a potential drop towards $2,100. That will coincide with a shove towards its 200-day moving average (blue line), at least for the time being.

The key technical level there is one where buyers can definitely lean on for support, should the structural narrative for gold continue to hold. And that is if we do see this head-and-shoulders pattern play out accordingly.

But as we know, things in markets are never that straightforward. However, this is one of the risks that should be acknowledged and could potentially pan out for gold price action in the short-term.

As for the longer-term outlook, I’m still one that is very much bullish on gold. Central banks are looking to rate cuts as the next step and the dollar will see some of its resilience over the last two years ebb once the Fed gets to that stage.

However, I’d much prefer if we do get a bit more of a retracement before that next leg arrives. That will make a more convincing argument for gold to really take off once the stars align.

This article was written by Justin Low at www.forexlive.com.