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XAU/USD Price Analysis: Gold Bounces from Fibonacci Support

XAU/USD Price Analysis: Gold Bounces from Fibonacci Support

Michael Boutros, Strategist

Gold prices are down nearly 2% month-to-date but the recent rebound off long-term support may yet offer some further upside for the battered metal near-term. Here are the levels that matter for XAU/USD heading into the close of July trade.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 my last Weekly Gold Forecast, we highlighted that that the price decline, “saw a strong reaction at the key 61.8% retracement at 1215 into the close of the week and while the broader risk remains lower, a recovery of sorts may be on the cards in the days ahead. Keep in mind, gold prices have seen just 4 up-weeks in the last 14! It’s too risky to begin positioning for a turn, but the threat of a near-term recovery remains evident while above the lower 50-line / 2017 March low-week close at ~1204.

A look at the daily chart highlights momentum divergence into last week’s low with a multi-month RSI resistance trigger pending. Initial resistance stands at the December lows at 1236 with key near-term resistance eyed at 1241- a region defined by the 100% extension of the recent advance, the 7/2 reversal-day close and the 2015/2016 trendline. This region is a make-or-break level for the bulls and will serve as our bearish invalidation mark.

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Gold 120min Price Chart (XAU/USD)

Gold 120min Price Chart

Notes: A closer look at price action sees gold trading within the confines of an ascending pitchfork formation extending off the lows. An outside reversal bar just ticks away from the upper 50-line sees the threat of a pullback here but the near-term outlook remains constructive while above 1220 (interim support 1225).

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Bottom line:Gold has responded to long-term Fibonacci support and while the broader outlook remains weighted to the downside, the risk for larger correction remains while within this formation. From a trading standpoint, I’ll favor fading weakness above 1220 targeting 1236 and 1241/44- a region of interest for possible exhaustion / short-entries IF reached. A break below 1214 would invalidate the reversal play with such a scenario targeting the March low-week close at 1204.Keep in mind we get the release of US 2Q GDP figures on Friday with the event likely to fuel some volatility in both the USD and gold.

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

Spot Gold IG TraderSentiment

Gold Trader Sentiment
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +6.06 (85.8% of traders are long) – strong bearishreading
  • Long positions are0.6% higher than yesterday and 6.6% lower from last week
  • Short positions are 4.7% higher than yesterday and 7.9% higher 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. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Gold price trend may soon reverse higher despite the fact traders remain net-long.

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

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

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