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Gold Prices Chop At Support, but Beware Jackson Hole

Gold Prices Chop At Support, but Beware Jackson Hole

2016-08-22 17:42:00
James Stanley, Strategist
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Talking Points:

  • Gold Technical Strategy: Gold prices continue consolidating near-resistance; under-side of wedge being tested.
  • The longer-term bullish structure of Gold is still in-tact; but as FOMC officials are talking-up higher rates, this could bring a deeper retracement before top-side plays become attractive.
  • If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

In our last article, we looked at the wedge formation that had developed in Gold prices after the bullish advance of August stalled below the July high. And connecting that July high to the August high gave a down-ward sloping trend-line that made up the top-side of a symmetrical wedge formation that continues to hold. Given the drivers behind Gold’s price action this year, this wedge-formation near resistance made sense. Gold prices have seen considerable pops-higher on the year as FOMC rate hike expectaitons have gotten kicked further-and-further into the future. And when the Fed does get more aggressive or hawkish, as we saw in May as many members of the bank talked up the prospect of higher rates, Gold prices get hit as investors buy USD in preparation for a ‘potential’ rate hike.

And this is somewhat of the issue with long-Gold scenarios at the current juncture. The July FOMC meeting saw the bank make a hawkish-tweak to their statement, very similar to what was seen at April’s FOMC meeting. And just like we saw in April, the market’s reaction to this ‘less dovish, slightly more hawkish’ statement was one of disbelief as markets continued to expect the Federal Reserve to stay loose and passive. But in the weeks following that April meeting and throughout May, and happening again this August following the July FOMC meeting, we’ve seen follow-thru with multiple Fed members talking up the prospect of higher rates. Last week, we heard from Mr. William Dudley and Mr. Dennis Lockhart, and already this week we’ve heard similar such comments from Vice Chairman Mr. Stanley Fischer. As these comments have come-in, Gold prices have continued to test deeper support levels with a bounce off of the bottom-portion of that symmetrical wedge this morning.

Gold Prices Chop At Support, but Beware Jackson Hole

Created with Marketscope/Trading Station II; prepared by James Stanley

Given the Jackson Hole Economic Symposium on deck for later in the week in which we’ll hear much, much more from many Central Bankers including a keynote speech from Chair Yellen herself, and there is a significant amount of opportunity for even more hawkish commentary on U.S. rate hikes. Such a scenario could bring additional strength into the U.S. Dollar and weakness to Gold prices; but longer-term this could be a beneficial occurrence.

To be sure, we’re not saying that the Fed will be raising rates in September. Rather, it looks as though the Federal Reserve wants to keep markets ‘on their toes’ by assuring that they’re ready to hike rates when the underlying data is strong enough to allow it; but this may be well into 2017 before that actually happens. Instead, we’re looking to play a ‘redux’ of the May scenario, in which a hawkish Federal Reserve drives a deeper retracement in Gold prices so that longer-term positions could be sought near ‘bigger picture’ levels of support.

On the chart below, we look at three such zones of support that could become attractive in a strong-USD type of scenario; allowing for longer-term bullish entries in Gold.

Gold Prices Chop At Support, but Beware Jackson Hole

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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