Gold Price Talking Points:
- Gold prices traded up to another fresh six-year-high yesterday, temporarily trading above the 1550 level before a sizable pullback began to show.
- US rates have risen today in what could probably be best described as a relief rally following a strong non-Manufacturing ISM report, obviating the Tuesday release that saw Manufacturing ISM dip below the 50-level, indicating contraction. The week is far from over, as tomorrow brings Non-Farm Payrolls out of the US.
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Gold Prices Put in Support Test
Gold prices have pulled back after another failed run at the 1550 level. Bullish continuation remained into yesterday’s trade as Gold prices made the third attempt at breaking-out and leaving the 1550 level behind. But, similar to the prior two instances that showed up last week, buyers pulled back on the throttle and prices began to follow. At this stage, the entirety of the Friday-Wednesday breakout has been retraced and Gold price action has put in a test of a key level around the 1509 area, a price that was previously investigated for higher-low support potential in Gold prices.
Gold Price Two-Hour Chart
Chart prepared by James Stanley; Gold on Tradingview
Rates Reversion
This move in Gold hasn’t taken place in a vacuum as a move-higher in US Treasury rates has taken place alongside this pullback. Given the deep overbought nature of the trend in both Gold and US Treasuries, this pullback as part of the ‘bigger picture’ themes of strength makes sense, and doesn’t necessarily obviate the continuation potential showing in either.
And, it’s worth mentioning that the next couple of weeks are full of market drivers: Tomorrow brings Non-Farm Payrolls out of the US, next week brings the ECB rate decision and the week after brings the FOMC. Around each of those Central Bank meetings additional loosening is expected and, perhaps even priced-in to a great degree. The bigger question is what the bank says about the rest of the year. If either come off as too hawkish, dismissing this recent round of pessimism to instead attempt striking a tone of stability, and stocks could quickly get hit again.
So, we’re likely sitting at the forefront of continued volatility in Gold over the next couple of weeks. The big question is whether that longer-term, overbought bullish trend might put in more of a pullback as a couple of key factors come into the fray. Stepping back on the weekly chart can highlight the importance of caution at this point as prices have continued to find resistance over the past couple of weeks, going along with that deep overbought read via RSI.
Gold Weekly Price Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold Strategy
At this point, the overbought nature in Gold has been around for some time and, as yet, bears haven’t been able to make much of a mark. Today’s pullback is coming in along with a pullback in Treasury yields, so the logical relationship there begs the question: Are US rates going to continue higher, even as the Fed walks into a highly-expected rate cut in two weeks? That can be an unlikely prospect at this juncture and it further adds to the allure of the long side of Gold.
This can set up strategy around Gold based on how aggressively the trader wants to treat this theme. For very-aggressive stances, the current support inflection from the 1509 Fibonacci level could be usable, looking for a re-test of the 1527 Fibonacci level that provided support early last week. A bit deeper, a less aggressive approach could look for support around either 1493 (mid-August swing support), or the 1475-1480 zone. Below that, 1453 becomes of interest and, if that can’t hold, the June-July swing-highs that run from 1421-1433 remain of interest. Falls below that price bring to question the longer-term viability of the bullish trend in Gold.
Gold Price Four-Hour Chart
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
