Gold prices has made fresh yearly lows three of the last five trading days with the decline now approaching our secondary support target. While prices may see a near-term reprieve from the recent selling-pressure, the broader risk remains weighted to the downside for bullion. Here are the levels that matter for XAU/USD heading into the close of the week/month.Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

Gold Daily Price Chart (XAU/USD)

Gold Daily Price Chart

Technical Outlook: In last week’s XAU/USD Technical Outlook, we noted that gold prices had validated, “a clear break of the monthly opening range keeps the focus on a late-month low in price. Subsequent support objectives are eyed at the 61.8% retracement of the July advance at 1266 backed by the median-line of the descending pitchfork formation (currently ~1256), 1251 and the 50% retracement of the broader 2016 advance at 1244.” Our levels / outlook remain unchanged- Gold broke below the 1266 target early in the week with price now approaching confluence support at 1251.

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Gold 240min Price Chart (XAU/USD)

Gold 240min Price Chart

Notes: A closer look at price action gives a better account of the near-term support confluence at the August swing lows / median-line at 1251. Note that near-term RSI divergence in the momentum profile further highlights the threat of a near-term recovery heading into this threshold. That said, the focus remains lower sub-1266 with near-term bearish invalidation up at the objective weekly opening-range highs at 1272. A break lower from here keeps the focus lower targeting the 50% retracement ta 1244 and the broader 78.6% retracement at 1239.

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Bottom line: The immediate focus is on a reaction on a move lower towards the 1251 support target with a near-term recovery to offer more favorable short entries while below the 50-line.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Spot Gold IG Client Positioning

Gold Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +5.66 (85.0% of traders are long) – bearishreading
  • Long positions are0.9% higher than yesterday and 2.6% lower from last week
  • Short positions are 5.6% lower than yesterday and 7.7% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger Spot Gold-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in Gold retail positioning are impacting trend- Learn more about sentiment!

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com