Gold Prices on the Brink of Breakout with Key Levels in View
GOLD PRICE TECHNICAL FORECAST: NEUTRAL
- Gold prices coiling up, Triangle chart pattern hints at upside bias
- Weekly chart Bearish Engulfing pattern contradicts, warns of top
- Retail sentiment studies offering mixed cues, confirmation needed
Gold prices have been mired in digestion mode since the beginning of the year, coiling up in what increasingly appears to be a Symmetrical Triangle pattern. The setup is usually indicative of trend continuation, which in this case carries bullish implications.
Confirmation of the setup requires a daily close above the Triangle’s upper boundary. That would initially expose the January 8 high at 1611.34. Extrapolating the pattern’s opening width up from current levels yields an implied objective that is not too far beyond that at 1658.00.
XAU/USD Daily Price Chart
Gold price daily chart created with TradingView
Longer-term positioning warns against over-exuberance however. The weekly chart presents an assertive Bearish Engulfing candlestick pattern coupled with negative RSI divergence, hinting that a top might be taking shape. A weekly close below trend line support at 1529.70 could act as confirmation.
XAU/USD Weekly Price Chart
Gold price weekly chart created with TradingView
On balance, this makes for an inconclusive landscape. Prices are wedged between key technical levels whereby a break in either direction would offer a convincing directional lead. Absent that however, making the case for follow-through one way or another seems unattractive on risk/reward grounds.
GOLD TRADER SENTIMENT
Retail trader data shows 65.80% of traders are net-long gold, with the ratio of longs to shorts at 1.92 to 1. The number of traders net-long is 0.32% lower than yesterday and 4.22% lower from last week, while that of traders net-short is 4.99% higher than yesterday and 15.62% higher from last week.
IG Client Sentiment (IGCS) is typically used as a contrarian indicator, so traders being net-long suggests gold prices may fall.Yet positioning is less net-long than yesterday and compared with last week. This warns that the current trend may reverse higher.
--- Written by Ilya Spivak, Sr. Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivakon Twitter
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