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Gold Price Breakout Hits Resistance - Pullback or Reversal?

Gold Price Breakout Hits Resistance - Pullback or Reversal?

2019-08-06 12:30:00
James Stanley, Currency Strategist
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Gold Technical Analysis:

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

Gold daily price chart

Chart prepared by James Stanley; Gold on Tradingview

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 price four hour chart

Chart prepared by James Stanley; Gold on Tradingview

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

gold price weekly 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.

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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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