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Gold Prices Most Overbought Since 2011 - but Does it Matter?

Gold Prices Most Overbought Since 2011 - but Does it Matter?

James Stanley, Senior Strategist

Gold Price Outlook Talking Points:

Gold Breakout Runs into 1500

The bullish breakout in Gold has continued to run with aggression after last week’s flare of trade tensions. And with trade wars appearing to be here to stay, and the Fed essentially backed into a corner, Gold bulls have run wild by pressing the bid for another almost 5% run in the first-half of this week. Prices have tested above the psychological 1500 level and, at this point, bulls don’t appear yet ready to back down. Current resistance in Gold is coming in around a Fibonacci level of interest at 1509.64. This is the 61.8% retracement of the 2012-2015 major move.

Gold Price Weekly Chart

gold price weekly chart

Chart prepared by James Stanley; Gold on Tradingview

The primary complication with setting up exposure on Gold at the moment is the overbought backdrop with which all of this takes place. RSI on the Daily chart has been diverging for some time now, and on the weekly, the indicator is at its most overbought since August of 2011, right around the time that Gold prices topped-out before sliding by more than $900 over the next four years.

Gold Price Weekly Chart with RSI: Most Elevated Since 2011 Top

gold price weekly chart

Chart prepared by James Stanley; Gold on Tradingview

This isn’t to say that the bullish run has to end just because of how extended matters have become. Given the fundamental backdrop, there could be scope for more gains. And an overbought reading on a technical indicator based on past historical information will probably not be enough to stop those confluent forces pointing higher on the Gold chart. It does, however, give some context to the current backdrop where those chasing prices at current levels should take into account for the fact that a retracement or pullback may be near given the incredibly strong sentiment that’s been pushing the bid now for a couple of months.

Gold Price Strategy Moving Forward

Given the context, there’s a couple of different ways that one could approach Gold at the moment depending on how aggressive they’d like to be.

Most aggressive would be watching for a hold of support around 1490. A short-term falling wedge has formed after that resistance came in around 1509, and this is a shorter-term bullish reversal pattern that could soon re-open the door to topside resumption.

Gold 30-Minute Price Chart

gold 30 minute price chart

Chart prepared by James Stanley; Gold on Tradingview

A bit less aggressively, traders can look for continued breakout scenarios. This would entail long entries above current resistance, which could then target a move towards the 1527 Fibonacci level.

Gold Eight-Hour Price Chart

gold eight hour price chart

Chart prepared by James Stanley; Gold on Tradingview

And even less aggressively with the risk of missing out on the move (FOMO control), traders can wait for a pullback to support from a previously tested resistance level. This was the approach that I had looked at on Monday but that setup never filled in as bulls have just continued to press. But – there is a potential area on the charts that could be workable for such an approach, taken from around the 1475-1480 area. If that doesn’t hold and the pullback extends, the same approach could be utilized from the 1446-1453 zone that was looked at just two days ago.

Gold Price Four-Hour Chart

gold four hour price chart 8.8.2019

Chart prepared by James Stanley; Gold on Tradingview

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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