GOLD PRICE ANALYSIS & WEEKLY TECHNICAL FORECAST – TALKING POINTS
- Gold prices spiked above $1,800/oz last week for the first time since November 2011
- XAU/USD performance gained 20% as the US Dollar Index declined 5% since mid-March
- Gold price action could consolidate lower as the relative strength index wavers
Gold continues to glisten. The precious metal has popped higher by about 20% subsequent to the Fed announcing its unlimited QE program this past March. Surging gold price action catapulted XAU/USD above the $1,800 mark last week, which aligns with 8.5-year highs, and now the yellow commodity trades within arms-reach of its all-time record close.
GOLD PRICE FAILS TO ECLIPSE AUGUST 2011 RECORD HIGH MONTHLY CLOSE (CHART 1)
Chart created by @RichDvorakFX with TradingView
Gold surmounting the psychologically-significant $1,800 price level with ease emphasizes the strong degree of bullish conviction maintained by market participants on net. That said, gold price action pivoted lower late last week after failing to take out the August 2011 monthly record close near the $1,825 zone. This barrier of technical resistance presents a notable obstacle for gold bulls gunning toward fresh record highs.
Another rejection at the $1,825 level could increase the odds that a double-top pattern has formed, and perhaps gives this area of technical resistance added credence going forward. Yet, there is potential for gold priced in USD to remain broadly afloat. This is seeing that the anti-fiat precious metal will likely continue enjoying bullish fundamental tailwinds as the US Dollar, a top safe-haven currency, depreciates largely thanks to exceptionally accommodative FOMC monetary policy decisions.
GOLD PRICE STRENGTH EBBS AFTER RSI REJECTED AT ‘OVERBOUGHT’ LEVEL (CHART 2)
Chart created by @RichDvorakFX with TradingView
XAU/USD might be gearing up for a modest pullback, however, as the Fed balance sheet drop threatens to undermine gold price action. Also, potential for a healthy consolidation lower is indicated by both the relative strength index and MACD. The RSI recoiled after running into “overbought” territory as gold gave back gains late last week. Meanwhile, with precious metal strength starting to wane, the MACD highlights how upward momentum has stagnated.
| Change in | Longs | Shorts | OI |
| Daily | 1% | 0% | 0% |
| Weekly | 17% | -6% | 5% |
As such, potential for bullion to drift lower and search for a new base has garnered traction more recently. If XAU/USD price action faces additional downward pressure next week, the 8-day moving average might serve as the first line of defense for gold bulls. A breakdown beneath this short-term trendline could reiterate ‘shifting tides’ in terms of the precious metal’s broader direction, and possibly steer gold prices toward the positively sloped 34-day moving average near the $1,750 zone.
XAU/USD ASCENDING CHANNEL MIGHT PUSH GOLD PRICES HIGHER (CHART 3)
Chart created by @RichDvorakFX with TradingView
The latest Bollinger Band squeeze also points to the possibility that gold prices may face bearish technical undercurrents in the upcoming days. On the contrary, an ascending channel formed by the series of higher highs and higher lows since early June could provide buoyancy to XAU/USD price action.
A confirmed breach of this rising channel might invalidate the dominant trend higher developed over the last several trading sessions, and possibly signal that a wave of weakness lies ahead for gold prices. Nevertheless, if a breakdown of the latest leg higher materializes, the 23.6% and 38.2% Fibonacci retracement levels could stymie downside by providing potential points of contention between gold bulls and bears.
-- Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
