Gold Price Outlook Talking Points:
- It was a wild finish to last week for Gold prices as a strong breakout showed on Friday. That theme continued with a quick spike to start this week’s trade, but much of that has already been faded-out with price action returning to the Friday close level.
- Gold prices remain overbought on a longer-term look but a potent backdrop of fundamental drivers has continued to bring bulls to the bid.
- DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.
Gold Prices Spike at the Open, Snap Back Fades Gains
Last week finished with a bang and it likely came from areas of the market that not many were expecting. Jerome Powell’s Jackson Hole speech did take on a dovish tone, with the FOMC Chair saying that the bank will do what’s needed to continue the expansion. But just a couple hours before he took the stage the ongoing US-China trade war got another ramp of volatility when China announced additional tariffs on US goods. This may have helped to prod that slightly-more-dovish Jerome Powell, but the Fed Chair’s speech is not where matters finished. Later in the day President Trump talked up even more tariffs on China, and that was walked back over the weekend.
Given the weekend events, risk aversion spiked at the open with Gold prices temporarily trading-above the 1555 level. That move has since pulled back with almost the entirety of those gains now given back and price action returning back towards last week’s close.
Gold Price Four-Hour Chart
Chart prepared by James Stanley; Gold on Tradingview
Can Gold Hold the Bid With a Messy Fundamental Backdrop?
Gold prices have been strongly bid for a full year now after bottoming-out around 1160 in August of last year. This topside move has had a few different drivers along the way, with the initial push coming from softening expectations around the Federal Reserve and that hastened through Q1 of 2019. More recently, however, a bit of fear has entered into the equation around the ongoing trade rift with China, perhaps best evidenced earlier this month. That’s when Gold prices softened on the heels of the FOMC rate decision, even as the bank cut rates for the first time in a decade; but a strong bid followed as President Trump announced another round of tariffs on China.
This collectively produces a fairly bright backdrop on the fundamental side of Gold prices. Ongoing trade tensions will likely be met with softer monetary policy out of the Fed; both factors that can further contribute to bullish stances in Gold. =The issue at the moment is in just how strong this theme has been getting priced-in with Gold prices moving to their most overbought state since 2011, right around the time that price action topped-out above the 1900 level. Since those lows last August, Gold prices have gained as much as 34% going out to this morning’s swing-high.
Gold Weekly Price Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold Price Strategy
Given the overbought longer-term backdrop with a fundamental scenario that could continue to lead to further gains, and traders have a couple of options for approaching the topside of Gold at the moment. Breakout potential remains, looking for spikes to fresh highs to carry on. This would be similar to the setup looked at last week in which breakout potential existed at the Fibonacci levels of 1509 up to the 1527 marker.
Alternatively, traders can look pullbacks to support that could re-open the door for defined risk plays. Key for such approaches will be actually confirming that support is actually showing at the level so that stops can be held below those lows; and if prices do continue to break-down, losses could be mitigated, and bullish entries could be re-examined later.
Aggressive support could be sought out around the current level should buyers help to hold the lows here today. This comes in at 1527 and this price provided a bit of resistance on Friday as well as a lower-high two weeks ago. This is the 23.6% Fibonacci retracement of the 1999-2011 major move in Gold. A bit-lower is another Fibonacci level of interest at 1509, as this is the 61.8% marker of the 2012-2015 sell-off. And below that is the zone that helped to hold last week’s lows that runs from the approximate 1492-1496.
Gold Price Two-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
