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Gold prices are down more than 2% from the weekly highs but continue to trade just above a critical support zone we’ve been tracking. Here are the levels that matter for XAU/USD heading into the close of the week.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 Gold Technical Outlook, we highlighted that prices had responded to critical support at 1236/39- a region, “defined by the 78.6% retracement of the December lows & the 78.6% retracement and converges on basic uptrend support extending off the late 2016-low as well as the median-line of the descending pitchfork formation we’ve been tracking since the April high.”

Price failed to close above the monthly opening range highs early in the week with the subsequent pullback once again eyeing the yearly lows. The levels remain unchanged for gold with our focus against key confluence support at 1236/39 heading into the close of the week. “Initial resistance stands at 1260 backed by 1266- a breach there would be needed to suggest a more significant low is in place. A break below this key support barrier risks substantial losses for bullion with such a scenario targeting 1214 backed by the March Low-day close at 1204.” Note that the RSI resistance trigger in remains in play and we’re looking for a close above to shift the broader momentum profile.

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Gold 120min Price Chart (XAU/USD)

Gold 120min Price Chart

Notes: A closer look at price action highlights a proposed pitchfork off the recent lows – it’s way too early to rely on this formation, but the parallels do further highlight near-term support at 1244 & topside resistance objectives at 1251, 1261 and 1266.

Why does the average trader lose? Avoid these Mistakes in your trading

Bottom line: Gold has responded to key weekly support and the immediate focus is on the June opening range with the broader downtrend at risk near-term while above 1236. From a trading standpoint, we’re on the lookout for a low / long-entries while above 1239.

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

Gold Trader Sentiment

Gold Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +8.23 (89.2% of traders are long) – strong bearishreading
  • Long positions are5.4% higher than yesterday and 5.8% higher from last week
  • Short positions are 4.4% lower than yesterday and 12.8% 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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Economic Calendar - latest economic developments and upcoming event risk

Other Setups in Play

- Written by Michael Boutros, Currency Strategist with DailyFX

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