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Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Richard Snow, Analyst

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Gold (XAU/USD) Analysis:

  • US inflation grinds higher, rising wedge on US10Y yields suggests potential bearish continuation (bullish for gold)
  • Gold prices currently lack direction but range trading conditions may be short-lived ahead of next week’s Fed meeting and possible tapering specifics
  • Charts analyzed: Weekly, Daily and 4-Hour
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US Inflation and US 10 Year Yields Considered

Inflation continues to grind higher despite assurances from the Fed that it remains transitory. Even the core PCE, a measure that strips out assets susceptible to price spikes/swings, is steadily rising over time. Gold is considered to be a hedge against inflation therefore, rising inflation expectations tend to prop us gold prices

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Source: tradingeconomics

US 10 year yields started the week slightly lower but more interestingly, the appearance of a rising wedge formation and a possible break below the wedge, may result in lower US yields in the short to medium term despite increasing pressure on the Fed to tighten monetary policy and eventually raise interest rates.

US 10 Year Yield Chart with Measuring Implications

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Chart prepared by Richard Snow, Tradingview

For more information on the rising wedge and many other must know technical patterns head over to our Education Section

XAU/USD Key Technical Levels

Analyzing the weekly chart for gold is a great way to get a sense of the multi-year trend which remains intact despite a massive pullback which started in H2 2020. Therefore, range trading setups looking for value at support may make more sense despite a very sideways market on the lower time frames.

XAU/USD Weekly Chart

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Chart prepared by Richard Snow, IG

The daily chart is a rather crucial chart for this market as it clearly shows major resistance to both higher and lower prices up until now. The 1830/1835 zone coincides with the 38.2% Fib and has capped gains on three separate occasions in the last two months.

The 1760 level, which coincides with the 23.6% Fib, has been less successful in preventing price declines but has proven effective more recently.

Additionally, the multi-year ascending is currently assisting in supporting gold prices and remains as a key obstacle before considering another test of the 1760 level. Oversold conditions on the stochastic further reinforces that large zone of support, meaning there may be a temporary retracement towards 1800 once more.

XAU/USD Daily Chart

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

Chart prepared by Richard Snow, IG

The 4 hour chart simply reinforces the significance of the multi-year ascending trendline and any indications of bullish momentum should be easier to spot from here than on the daily chart.

Therefore, the combination of continuing inflation concerns coupled with the appearance of the bearish pattern on US 10 year yields may support gold prices in the near-medium term. However, the most immediate risk remains any Fed talk in the lead up to, and revelations discussed during the Fed meeting next week, that are perceived as more ‘hawkish’ than anticipated.

Gold (XAU/USD) Tech Setup: Conditions for Continued Range Trading

XAU/USD 4-Hour Chart

Chart prepared by Richard Snow, IG

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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