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Gold Prices on the Brink of Breakout with Key Levels in View

Gold Prices on the Brink of Breakout with Key Levels in View

Ilya Spivak, Head Strategist, APAC

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 Prices on the Brink of Breakout with Key Levels in View

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 Prices on the Brink of Breakout with Key Levels in View

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

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

AUSTRALIAN DOLLAR TRADING RESOURCES

OTHER TECHNICAL FORECASTS:

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

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