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Gold Prices Run Through $1,300 as Dollar Weakness, Risk Aversion Flares

Gold Prices Run Through $1,300 as Dollar Weakness, Risk Aversion Flares

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Talking Points:

- Gold prices staged an aggressive bullish breakout beyond the $1,300 psychological level.

- IG Client Sentiment is currently showing a read of +1.705 for Gold.

- Want to see how Gold prices have held up to our DailyFX forecasts? Click here for full access.

In our last article, we looked at Gold prices after a failed breakout at the psychological level of $1,300. This failed breakout took place after another key resistance level had yielded at $1,296, as a double top had formed after the April and June advances turned-around at this price. But the third approach in August saw prices run through $1,296, setting a fresh short-term high at $1,300 before sellers were able to take-over as we walked into the Jackson Hole Economic Symposium.

That short-term bearish tonality lasted in Gold for most of last week, with prices even posing a down-side breech on Friday just ahead of Chair Yellen and ECB President Mario Draghi’s speeches in Wyoming. But as Chair Yellen began speaking, the Dollar started to drop again, and this firmed-up Gold prices as we moved into last week’s close. The following Monday morning, shortly after the open of the U.S. session, Gold prices broke through $1,300 and didn’t pause until we set a fresh nine-month high around the $1,325-handle. We’re looking at this recent move on the below chart, while also pointing out what could be an interesting level to work with around $1,308.

Gold Prices Breakout to Fresh Nine-Month Highs After Jackson Hole

Chart prepared by James Stanley

The most recent driver to provide fuel for Gold prices was last night’s missile launch out of North Korea. This time, North Korea’s missile traveled over Japan, raising worries of an actual attack. This brought a brief run of risk aversion to global markets, which has begun to recede as we’ve moved deeper into the U.S. session. This is likely why we’ve seen a chunk of that recent top-side breakout erased as a retracement has begun to show. This highlights the danger of trying to chase Gold prices at the moment: Volatility is likely going to continue to show on both sides as these very pressing themes of Dollar weakness and global risk aversion continue to develop.

For traders looking at taking on long exposure in Gold, they’d likely want to wait for some element of support to show before triggering the position. Given the response on Friday, the prior swing-low in Gold is all the way down to $1,274.45, which, as of this writing, would be more than $42 in risk. That would necessitate a move to $1,359 to justify a one-to-one risk-reward ratio, which would require breaking through multiple resistance levels on the way-up. Instead, an inside move to a deeper support level can open the door for bullish continuation strategies. The level we mentioned about around $1,308 could be interesting, as this was the pre-Election swing-high in Gold prices. Below that, we have the prior breakout zone that runs from $1,296-$1,300 that could be usable for secondary support. Each of these could afford a more efficient entry with stops below that prior swing.

Chart prepared by James Stanley

If Gold prices don’t retrace and if this bullish move continues without much additional pullback, there are a series of potential resistance levels resting above current price action. These can be targets for bullish positions, or for those looking to set up an entry, each of these resistance levels can be used to look for a pause in the bullish advance, at which point the traders can attempt to buy support at prior resistance (the previous level).

Gold Daily: Plethora of Potential Resistance Levels Above Current Price (2016’s Bearish Grind)

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for

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