Gold Price Outlook Talking Points:
- The rest of this week is full of drivers on the economic calendar with highlights of FOMC on Wednesday and NFP on Friday.
- Gold prices remain in a bull flag formation that’s been brewing since September, and this has continued through the Q4 reversal in the US Dollar. Will Gold bulls breakout around the Fed and, perhaps more to the point, will that be around the October FOMC rate decision or the December outlay?
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Gold Bulls Held at Bay in Front of Big Week of Data
It’s a big week for US data with high-impact releases set for every day in the remainder of this week. Key of which will be tomorrow’s FOMC rate decision along with the Friday release of Non-Farm Payrolls, each of which can help to keep price action in the US Dollar on the move. And perhaps surprisingly, despite the US Dollar’s reversal in the first few weeks of Q4, Gold prices remained in a state of digestion, sticking within a bull flag formation that’s built after August and September swing-highs.
The resistance side of that bull flag began to get tested late last week, with likely drive coming from anticipation around this week’s calendar events. Sellers stepped-in at the October highs helping to hold the advance at bay for now.
Gold Eight-Hour Price Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold Bulls and the Matter of Timing
After the +34% jump in Gold prices from last August into this September, the natural question is one of continuation potential. Gold bulls remained strongly in-charge of price action throughout this summer, posing an extension of that move from June into last month that brought six-year-highs into play. This comes after a three-month-stretch of digestion that spanned from February into May, highlighting a similar scenario to what appears to be showing now.
The big question at this point is when might Gold bulls jump back into the matter? Given the reversal in the US Dollar, it could be rightfully questioned as to whether they’ve thrown in the towel; but if one drives back to the source of that USD-weakness, emanating from positive items getting priced into counterparts such as the Euro or the British Pound, each of which have rather heavy weightings in the DXY basket, and it makes sense as to why Gold prices didn’t break-out as the US Dollar broke down.
In early-June, that driver was the Fed getting more dovish and opening the door to rate cuts. And the bank has now cut twice but this has happened without the assurance of more cuts happening down-the-road. When or if the Fed does signal additional oncoming rate cuts or, perhaps even, more stimulus, Gold prices will likely respond in a very bullish way. The big question is whether this happens at the October rate decision tomorrow or the December rate decision later this year.
Given the fact that this bull flag has retraced 23.6% of that recent bullish move spanning back to last August, combined with the fact that this retracement began as Gold prices moved to their most overbought level on the weekly chart since 2011; and motive does remain on the long side of the matter, looking for buyers to make a re-appearance, at some point, to drive to fresh six-year-highs.
Gold Price Daily Chart: Digestion Similar to February-May Falling Wedge
Chart prepared by James Stanley; Gold on Tradingview
Gold Prices and Levels that Matter
At this stage, the resistance zone that came into play in early-August has helped to thwart the bullish advance. This runs between two Fibonacci levels at 1509 and 1527, with the October swing-high showing around the 1520 level. A topside test above the 1527 level opens the door for bullish continuation, as this can be seen as a signal of buyers getting a bit more aggressive to produce fresh monthly highs indicating that the bull flag break may already be underway.
On the support side of the matter, the zone that runs from 1475-1480 has continued to hold the lows through much of October trade, now surviving through multiple tests. But, given that FOMC disappointment in which the bank is more hawkish than what markets are looking for will be the likely driver of lower prices in Gold, and this support zone may not be as attractive given its proximity to current price. A bit lower is another zone of interest that runs from the July swing-high of 1453 up to the October swing-low of 1460 to produce a secondary zone of support potential. Below that is one additional zone of interest spanning from the Fibonacci level of 1421 up to 1433, which had previously helped to hold the highs in June-July trade but, as yet, hasn’t been tested for support.
Gold Prices 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.
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
