Gold Technical Analysis:
- Gold prices have been aggressively bid as driven by a cocktail of US-China tensions, US Dollar weakness and a potentially dovish outlay at the Fed in response to heightened trade worries.
- Gold remains very near fresh six-year-highs as the bullish breakout continued through this week’s open. Prices have since found resistance but, at this point, there's little to suggest this is anything more than a pullback rather than a full-scale reversal.
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Gold Prices Continue Ascent
The bullish breakout in Gold has continued into a new week as a potent cocktail of risk has gripped global markets. Perhaps not ironically, this has all begun after the FOMC cut rates for the first time since the Financial Collapse. In a move that was initially framed by FOMC Chair Jerome Powell as an insurance rate cut, which brought on a pullback in Gold; it’s now looking increasingly likely that last week’s cut was the first of more to come. In the accompanying press conference, Powell pointed to trade tensions as one of the reasons for a more cautious outlook, and this topic came to light less than 24 hours later when President Trump announced increased tariffs on China. This took many by surprise but it also perhaps re-defined the Fed’s outlook discussed less than a day earlier as that potential variable of worry around trade got a little bit louder.
After resistance just shy of the 1450 level last week, Gold prices put in an aggressive topside breakout to begin this week, coming very close to the 1475 marker during last night’s trade.
Gold Daily Price Chart
Chase an Overbought Breakout, or Wait for Pullback
As looked at coming into this week, bullish breakout potential remained as Gold prices postured so close to those previously established highs. But now that fresh highs are in and prices have begun to pullback, the big question is where support may show up. And given that we’re in some territory that hasn’t been traversed in more than six years, it can be difficult to grasp onto recent historical examples of where that may show. So, first, taking a shorter-term perspective for traders that want to approach the matter aggressively, higher low-support potential could be sought out in a few different areas of interest.
The prior six-year-high that was set around the 1453 level can be extended down to the 38.2% Fibonacci retracement of the recent breakout, creating a potential support zone to look to for higher-low support. A bit-lower, another similar area of interest exists from the late-July swing-high around 1433.80 down to the 61.8% retracement of the same move, coming-in around 1428.85. If both of these zones are taken-out, near-term continuation potential comes into question.
Gold Four-Hour Price Chart
Gold Prices Longer-Term
If this recent breakout does end up becoming erased, which given the headline-flow over the past few days, must be considered as a scenario; the longer-term look on Gold prices still remains bullish. This comes from the fact that we’re probably not going to see any hawkish major Central Banks anytime soon and, likely, pressure will remain on global growth until cessation is seen on a variety of trade issues. And, at this point, it appears as though China’s strategy will be to try to wait out President Trump through the 2020 election, which can keep that pressure on growth for an extended period of time.
This excitement is likely one of the major factors driving the force of the recent breakout in Gold. It’s context that’s roughly similar to the post-Financial Collapse backdrop when most major Central Banks around the world are harboring some form of dovish policy, or at the very least considering it.
So, if this current phase does end up washing out, similar to what was seen from February-April of this year, longer-term support potential remains at key areas of prior resistance that, as yet, haven’t been tested for support since prices broke-out in June. These levels show around 1375 and 1357.50, each of which were previous annual highs that showed as follow-through resistance.
Gold Weekly Price Chart
To read more:
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX