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Gold Prices Grind Sideways in a Triangle

Gold Prices Grind Sideways in a Triangle

Jeremy Wagner, CEWA-M, Head of Education

Talking Points:

  • Gold prices continue month long consolidation
  • The higher probability pattern appears to be a triangle with support near $1311-1320
  • Gold priced in foreign currencies show gold outperforming against GBP, EUR, CHF, CAD, AUD but holding steady against JPY and USD

Gold prices have been consolidating in sideways fashion for the past month. With limited new information from the Fed regarding the status of the next rate hike, gold prices have found a comfortable range to trade in.

Technically speaking, this range could be taking the shape of a triangle. This pattern suggests we’ll look for lower levels to buy into. It is not uncommon for prices to briefly penetrate the triangle’s trend lines. Therefore, the risk can be set off the July 21 low near $1311.

Chart prepared by Jeremy Wagner

One other chart I’ll review from time to time is gold priced in foreign currencies. You see, gold is naturally priced in US Dollars. So if USD is materially moving, it can provide either a head wind or tail wind for gold. Therefore, in order to strip out the effects of USD, we have a chart showing gold priced in multiple currencies while related against one another.

Chart prepared by Jeremy Wagner

We began the analysis on June 24, the day after UK voted to leave EU. There was an immediate knee jerk reaction in gold towards higher prices, so we waited to begin the analysis until AFTER that initial shock to see how the performance has been. Notice how most of the lines show up in the green shaded box? This indicates that gold has been outperforming the main currencies since June 24. The 2 lines at the bottom are JPY (black) and USD (blue). These 2 currencies are the ones gold has had a difficult time outperforming.

The orange line at the top of the chart is gold priced in GBP. This should come as no surprise as Sterling continues to weaken even after the initial waves of the Brexit vote.

A couple things we learn from this chart is that gold appears supported as it is outperforming many of the large currencies. Therefore, a trader could look to buy dips in gold. Triangle support comes into play near $1311-1320.

Secondly, we learn that GBP continues to run relatively weak to other markets. A trader could look to buy gold, then hedge off the USD exposure by simultaneously selling GBP/USD. This is a bit more complex and adds more exposure to the trader’s account, but it does open the door for a trader to play both trends.

Gold priced in Sterling was one of our top trades of 2016. To learn about it and see our quarterly forecasts for Gold, USD or GBP, download our quarterly forecast here.

See gold trader positioning here.

Why do many traders lose? This could be why.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU

Follow me on Twitter at @JWagnerFXTrader .

See Jeremy’s recent articles at his Bio Page.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.