We suggested in August that traders who went short gold in May were beginning to consider covering their short positions.

The consolidation over the past few weeks has triggered short covering, but it has not encouraged new long positions.

When the gold price rebounds, it tends to do so rapidly without any consolidation activity. The gold price is characterized by trend rebounds from pivot point lows. Those are steep and rapid rebounds that have the characteristics of a short-term rally but also have a habit of developing into longer-term sustainable trends.

That has not developed. Gold made a plunging low in late August with a dip to $1,168. Historically, such dips have been followed by a rapid rebound, but that has not developed. Instead, there has been a period of sideways consolidation.

Evidence of a potential pivot point rally rebound includes two features.

The first bit of evidence would be a slowing of downward momentum. The range from low to high for the week is significantly smaller than the previous weekly ranges. That did develop.

The second feature indicating a potential rally would be a fast rebound with a significantly larger weekly low-to-high range: a large green candle that follows a very much smaller red candle. That did not develop and is the key clue to the continuation of the downtrend.

In other words, the consolidation pattern is a pause pattern rather than a reversal pattern.

The short-term group of averages in the Guppy Multiple Moving Average indicator were well separated. That shows traders are not optimistic about the potential for a trend change.

The long-term GMMA has crossed over and is continuing to develop steady separation. Those are bearish features that signal a continuation of the current downtrend.

The downside target is near $1,130 and is based on the value of the previous pivot point low rebound recovery in 2016.

Traders who covered shorts as the consolidation developed will now look to open short position again if the price dips below $1,180.

Traders continue to trade the retreat behavior. We use the ANTSSYS trading method for this.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.