Gold prices are testing a critical support price at the $1,170 level, which would be a key make-or-break level between bulls and bears. So far, we’re supporting off that level, so let’s see that “Line in the Sand” on the daily chart of gold futures:

Click on image to enlarge!

Above, we see the Daily Chart of gold with a volatility rule for the color changes from green to red. These represent “swings” in price and are a neat visual reference to classify short-term swings.

Most importantly, pay very close attention to the $1,170 level, which represents major price support for the current downswing in price.

Gold tested this level twice in early 2010 as a high, then two times (including now) as support. This is the “Price Polarity Principle” where prior resistance becomes future support.

A negative momentum divergence undercut the recent swing high in gold, and I highlighted that odds favored a down move in my prior post from July 1:

“Gold’s Strange Top-Heavy Chart with Negative Divergences.”

Now that we see the outcome, it doesn’t seem so ’strange’ anymore that gold fell from its ‘top-heavy’ chart.

But now, we test support, and need to watch very carefully how market participants react at this level.

Thus, watch $1,170 very closely as the key reference level for gold, or $114 in the GLD ETF.

For more daily updates from Corey, visit his blog at Afraid to Trade.com