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Gold Price Outlook: Gold Prices Continue Congestion as USD Dives

Gold Price Outlook: Gold Prices Continue Congestion as USD Dives

2019-10-21 13:30:00
James Stanley, Currency Strategist
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Gold Price Outlook Talking Points:

  • Gold prices have continued to meander despite the deeper breakdown in the US Dollar.
  • Gold prices remain in a bull flag formation, and the key driver here appears to be the FOMC and the potential for the bank to get even more-dovish at rate decision in October and December of this year.
  • 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 Continue in Bull Flag Despite USD-Breakdown

The US Dollar breakdown has continued into another week and Gold prices remain in a congested state, sticking to the bull flag formation that was looked at last week. And while it may be easy to begin harboring bearish hints towards Gold prices given this failure to press up to fresh highs as the USD has fallen to fresh lows, the longer-term backdrop in Gold does remain supportive for higher prices, at some point, as the bull flag formation hasn’t yet retraced more than 23.6% of that prior major move.

As looked at around last week’s open, Gold prices started a bullish move last August that hastened through Q4 of 2018. Along the way have been two significant areas of pause: From February into June and again in July of this year. The current case of digestion is especially reminiscent of that February pullback as a falling wedge formation had formed there.

Gold Prices Daily Price Chart

gold daily price chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Bulls: What’s the Trigger?

Given the backdrop in the US Dollar along with the failure from Gold to push up to fresh highs or to resume the bullish trend, and deductive cues can begin pointing to the potential for a reversal in Gold should USD-strength come back into play. But, traders would likely want to source those themes back to relevant drivers as this current USD-spill is very much driven by positive events around Brexit that have helped both the Euro and the British Pound to recover.

The big driver behind Gold strength going back to last year was a Federal Reserve getting more and more dovish. This bullish ramp in Gold echoes that shuffling around the FOMC, as the Fed moved from an aggressive pace of hikes (four in 2018) to standing flat until eventually they began to cut. It was just a year ago that the FOMC said they were looking for another two hikes in 2019 along with that additional hike in December of 2018. At this point, the Fed has cut twice already, running in stark contrast to last year’s expectations, and more may be on the way. The key word there is ‘may’ as the bank has yet to suggest that they’re nudging rates lower again at their rate decision later this month; and that’s likely what’s going to drive Gold prices from here.

Gold Eight-Hour Price Chart

gold eight hour price chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Strategy Moving Forward

Given the current backdrop around Gold prices, in which the market remains in a corrective state with longer-term bullish potential, and traders can proceed in one of two ways to work with the long side. Either waiting for a deeper support level to show up, at which point fresh bulls might enter the equation to re-take control of the bullish theme. Or, exercising a bit of patience and allowing for price action to push above this bearish trend-channel, looking for a topside break of the bull flag formation to re-open the door to bullish operations. The support zone looked at last week from 1475-1480 has continued to hold the lows but, at this point, there’ve been so many tests there that it may not longer be as attractive.

The two-month-low in Gold prices currently shows around the 1460 level and just below that, at around 1453, is a July swing-high that has yet to be tested for support. Those two prices can be combined to produce a zone of support potential should this correction continue. A bit lower than that brings another key Fibonacci level into the mix at 1421, and this can be connected with the July 2013 swing-high of 1433.85 to produce a secondary zone of support potential. This is something that may come into play should a very weak US Dollar experience a short-squeeze scenario, particularly should the FOMC take on a more-hawkish-than-expected stance at next week’s rate decision.

Gold Price Daily Chart

gold price daily 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

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

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