Gold Price Forecast Talking Points:
- It was a big year for Gold as the yellow metal set a fresh all-time-high in early-August.
- Gold prices became massively overbought during this summer’s bullish run; but since setting that high in August, Gold has put in four-plus months of digestion.
- Yesterday’s price action showed a doji with tests of both support and resistance, highlighting the potential for a near-term break.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
This feels a pretty atypical holiday season and given the year that we’re about to finish up, I guess that makes sense. Normally markets are quieting in preparation for a low-liquidity backdrop as the Christmas holiday approaches. Traders’ attention is on toys and parties more so than support or resistance breaks, at least usually; but this year sees a number of peculiarities and these have been voiced fairly clearly through markets during this outlandish year of 2020.
Gold prices have remained in the spotlight throughout the year. Coming into 2020 I had called Gold my ‘top trade idea’ of the year, largely under the expectation that the FOMC would continue to soften policy after their pivot in 2019. Well, that happened, and perhaps far sooner than anyone could’ve expected. The Fed got very busy in the month of March with a series of actions that, eventually, turned an aggressively bearish equity backdrop into what became one of the strongest topside runs that I’ve ever witnessed. Gold prices benefited massively from June and into August as buyers took over and didn’t relinquish the reins until fresh all-time-highs were in-play above the $2,000 level.
But, after that fresh high was set in early-August, the music shifted with the confirmation of a bearish engulfing pattern on the same day that the all-time-high was set. Prices quickly pulled back, finding support at a confluent zone that remains in-play more than four months later. Much of the time since that fresh high has been spent with Gold showing varying forms of digestion. There’ve been multiple fits and starts of possible breakout behavior, including around the early-November elections and, a week later, news of Covid vaccines on the way erasing the bulk of that bounce on the way to those fresh four-month-lows set in late-November.
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At this point, Gold prices are bound by both big support and big resistance. For support, the same zone that caught the lows four months ago remains in-play today. For resistance – we’re looking at another confluent zone of prior support, spanning from the 1900 psychological level up to the 1920 prior all-time-high.
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Gold Price Daily Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold Prices Near-Term: Bullish Construction Continues
Going down to shorter-term charts may add some enthusiasm for the topside theme in Gold prices. Since setting a fresh four-month-low in early-December, buyers have continued to pose a series of higher-highs and higher-lows. Last week was especially important for that backdrop as buyers put in multiple defenses of support around 1823.71, which is the 61.8% retracement of the June-August major move. This is the same study from which that four-month-low was defined, around the 76.4% retracement of that same study.
Notable is the continued pattern of higher-highs and higher-lows, with current support grasping for the 50% marker from that same major move.
Gold Price Four-Hour Chart
Chart prepared by James Stanley; Gold on Tradingview
Gold Intermediate-Term
For those with bearish Gold biases, there could possibly be supportive criteria from an intermediate-term time frame. This would largely be built around the idea that the December strength is corrective in terms of a longer-term bearish scenario. The recent lower-low, combined with a hold of resistance around prior support, could keep the door open for short-side trends.
Also supportive of that theme is yesterday’s doji, which spanned from support to resistance. Doji formations highlight indecision, and the fact that this printed after a couple of weeks of strength indicates that there could, possibly, be a change-of-pace.
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This also exudes the importance of following near-term support around the 50% marker of the June-August major move, as sellers taking this level out would be the next step to a deeper bearish move.
Gold Price Eight-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
