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Gold Price Outlook: XAU Charges Above Key Level, Can Bulls Maintain?

Gold Price Outlook: XAU Charges Above Key Level, Can Bulls Maintain?

2020-01-17 14:06:00
James Stanley, Currency Strategist
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Gold Prices Re-Test Resistance at 2019 High

Elongated trends can be difficult to work with as there’s often a messy offset between buyers coming in to chase the trend washed against sellers that are either trying to fade the rip or close long positions. This is one of the reasons that no trend will remain linear and this is also why there’s usually a two-step-forward, one-step-back type of operand to trending market conditions.

Sometimes, however, the excitement is such that the trend-side move doesn’t remain at a simple two steps forward but rather jumps by leaps and bounds to fresh highs. This can be a good thing – for those that are long ahead of the move. However, for that group of trend traders waiting patiently for a more manageable entry, the trial of patience can become an item of frustration.

This pretty much describes the backdrop in Gold in the final four months of last year. After a blowout bullish breakout started in the summer and ran into September, price action lurched up to a fresh six-year-high before buyers, all of the sudden, got trepidatious about chasing the move at such elevated levels. Those holding longs combined with those looking to fade the move helped to offset those that were late to the party and looking to add, and for the next three months after that high was set in September, Gold prices continued to digest more and more of that summer breakout; with price action taking on the form of a symmetrical wedge pattern.

Gold Price Daily Chart

gold daily price chart

Chart prepared by James Stanley; Gold on Tradingview

From the above chart, the November swing low is highlighted, and this is where the current five-month-low comes into play, right around the 38.2% Fibonacci retracement of the summer breakout. As looked at earlier this week, resistance has continued to show around the prior 2019 swing high, taken from around 1557.10; and this level remains in-play today following last week’s support inflection at 1535.

Gold MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 4% 2% 3%
Weekly -7% 36% 7%
Current Retail Sentiment in Gold Prices
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Gold Price Two-Hour Chart

gold price two hour chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Price Strategy Moving Forward

While the longer-term bullish trend remains attractive in Gold, the bigger quandary at the moment is one of timing. Is price action at a point where buyers are ready to continue the move? While fear very much played a role in the early-year breakout, that driver appears to have recently taken a backseat. The other, perhaps more pertinent driver to the longer-term trend, the FOMC and the prospect of continued soft monetary policy, doesn’t really appear to be in focus at the moment, and this may be something that doesn’t become a factor again until March or later.

--- 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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