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Gold Price Forecast: Gold Support Test - Can Bears Break it Down?

Gold Price Forecast: Gold Support Test - Can Bears Break it Down?

James Stanley, Senior Strategist

Gold talking points:

  • Gold prices were punched lower last Friday on the back of Chair Powell’s comments at Jackson Hole.
  • Gold continued its descent coming into this week, finally filling a gap that was produced by the July FOMC rate decision at a level that’s confluent with a Fibonacci retracement at 1733.
  • Bigger-picture, Gold has been range-bound since topping-out two years ago. Range support has held three significant tests already, most recently in mid-July. Are sellers nearing another re-test of this zone and given fundamental headwinds, might bears find a more-optimal outcome on a 4th test of this zone?
  • 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.
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Gold’s all-time-high, in terms of USD, was set a little more than two years ago. At the time the liquidity cannons were at full blast in the United States and gold prices put in an astounding 44% run from the March 2020 low up to high set in August of that year.

What happened after, however, showed a far different tone. Gold prices started what initially looked like a pullback. The big hammer for bears showed up about a week after the US Presidential election, when news of working vaccines started to make their way through markets. This brought the implication that pandemic-era stimulus may soon go away and that helped to produce a continued pullback in gold prices as the ‘reflation trade’ started to take-over in early 2021.

In March of last year, gold prices set a fresh low at 1673. Almost eighteen months later, that price remains as range support and there’s been two separate tests in that area showing up since, with the most recent test taking place in the middle of last month.

Gold Weekly Price Chart

gold weekly price chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Shorter-Term

Gold prices have been selling-off over the past couple of weeks following the build of a rising wedge formation. And that took place following a bounce from that key zone of support looked at above, which came into the equation after another sell-off from another rising wedge formation.

Last week saw prices bounce after a five-day sell-off on the back of that wedge break. But, resistance showed up at a familiar spot and this kept the door open for bearish continuation, which hit with gusto on Friday after Chair Powell’s speech.

That sell-off continued through this week’s open until price finally found some support at a confluent spot on the chart. There was a gap from the July FOMC rate decision, where the Wednesday bar (on the day of the rate decision) had set at 1732. Just above, at 1733, is the 14.4% Fibonacci retracement of the pullback move (2020 high to 2021 low).

That price has since helped to hold the lows and this remains as key near-term support in gold.

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Gold Two-Hour Price Chart

gold two hour chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Fundamental Backdrop

Given the fundamental backdrop, with Chair Powell making a more-forceful push towards policy tightening with the messaging at Jackson Hole, it would seem there to be fundamental potential for bearish continuation in gold. Higher rates mean a higher opportunity cost of capital and this can be a constraint for gold.

The bigger question is whether this is the episode that can produce a breach of the support zone that’s held for the past two years, inside of the 1700 psychological level and around that 1673-1680 zone on the chart.

Gold Daily Chart

gold daily chart

Chart prepared by James Stanley; Gold on Tradingview

Gold Levels

Support at this point remains at that confluent spot on the chart that’s already helped to form yesterday’s low. Just below that, there’s price action swing potential around 1721 and 1712. Below that, the psychological level of 1700 comes into the picture, followed by a Fibonacci level at 1690 which then leads to that multi-year-low at 1673.

So, sellers have quite a bit to work through in order to produce those fresh lows, but given fundamental headwinds and as we’ve seen over the past month, that potential can exist particularly if the Fed continues their hawkish-push.

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Gold Four-Hour Price Chart

gold four hour price chart

Chart prepared by James Stanley; Gold on Tradingview

--- Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

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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