Gold Price Forecast Talking Points:
- Gold prices have started 2020 in a very similar manner to last summer’s theme of strength.
- Gold has hit a fresh six-year-high, finding a bit of resistance around a long-term Fibonacci level before pulling back. At this point, support has showed at prior resistance, taken from last year’s high. But are bulls ready to continue to drive despite overbought short-term conditions? As looked at in this year’s ‘Top Ideas,’ the bullish side of Gold can remain of interest given the economic and geopolitical backdrops.
Gold Prices Breakout Again, Furthering 2019 Theme of Strength
Gold prices have started 2020 very similar to the net outlay from 2019. Gold came into last year clinging to a bullish trend that had started from August 2018 lows. As expectations for a softer FOMC drove asset prices in Q1, a bullish breakout showed up in Gold that drove prices to fresh highs, with a bit of resistance showing around the 1345 level. After a three-month break in which a falling wedge formation showed up, an aggressive breakout took over in June and lasted into early-September, at which point Gold prices hit a fresh six-year-high at 1557.10.
But, as documented in these articles numerous times, that bullish breakout remained on hold through the end of September and the bulk of Q4, allowing for the build of a symmetrical wedge formation, only starting to give way as the holiday neared.
Gold Daily Price Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold prices began to work outside of this wedge formation on December 23rd, with the theme getting a shot-in-the-arm a day later. Since then, bulls have remained in-control, producing fresh six-year-highs as Gold prices have traded higher for eight of the last nine days. That breakout has thus far continued into the New Year, with another gap showing yesterday, with price action temporarily testing the 61.8% Fibonacci retracement of the 2011-2015 major move, a level that hasn’t been tested since April of 2013.
Gold Price Weekly Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold Price Strategy Moving Forward
At this point, the bullish trend appears to be back at work in Gold prices and the primary point of concern would be chasing a mature breakout after short-term conditions have quickly moved to overbought levels.
And given the events in the early portion of 2020, driven by a fear bid over worries of heightened geopolitical tensions between the US and Iran, and there could be valid reason for traders to take a back seat in order to allow prices to settle, particularly if those increased tensions begin to soften. But – there’s another reason of interest on the long side of Gold, and this is the same that drove the theme through the bulk of last year, and that’s a softer FOMC. This was the primary driver behind the bullish theme in Gold being named as one of my top ideas for 2020, carrying the expectation for the FOMC to continue with a soft monetary backdrop as a series of global risks remains in the limelight.
At this point, Gold prices have yet to fill this week’s opening gap, meaning more softening may be on the cards before the longer-term bullish theme is ready to resume. Price action has already pulled back to find support at prior resistance, taken from that previous six-year-high that was set in September. That bounce has run into short-term resistance, however, and this keeps the door open for a deeper pullback.
| Change in | Longs | Shorts | OI |
| Daily | 7% | -8% | 3% |
| Weekly | 2% | -15% | -3% |
Gold Price Hourly Chart: Short-Term Resistance at Prior Support
Chart prepared by James Stanley; Gold on Tradingview
Gold Price Support Potential
Should the recent inflection of support taken from prior resistance not hold, a number of levels remain of interest underneath current price action. Last week’s close comes in around 1551, and pushing below this level would fill the weekend gap. Below that, a prior resistance swing sits around 1535 that, as yet, hasn’t shown much for recent support. And below that is a prior Fibonacci level of interest around 1515, which set a number of resistance swings throughout Q4, as well as late December; but similarly, hasn’t come into use as support since the recent bullish breakout.
Gold Price Four-Hour Chart
Chart prepared by James Stanley; Gold on Tradingview
--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
