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Gold Price Outlook: XAU Testing Yearly Lows – Shorts Vulnerable

Gold Price Outlook: XAU Testing Yearly Lows – Shorts Vulnerable

Michael Boutros,
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Gold prices are down more than 1.3% this week with today’s decline taking bullion back into the yearly range lows ahead of tomorrow’s Non-Farm Payrolls (NFP) release. These are the updated targets and invalidation levels that matter on the XAU/USD charts heading into the close of the week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

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Gold Daily Price Chart (XAU/USD)

Gold Price Chart - XAU/USD Daily - GLD

Technical Outlook: In my latest Gold Price Technical Outlook we noted that XAU/USD had, “responded to near-term down-trend support and leave the immediate decline vulnerable while above today’s low.” Price rebounded to a high at 1288 on Friday before pulling back with the post-FOMC sell-off fueling a break below the yearly opening-range low at 1276. Gold is now attempting to break below confluence slope support with a weekly close below needed to keep the short-bias viable.

Subsequent downside objectives are eyed at 1258 backed closely by critical support at 1252/53- a region defined by the 50% retracement of the 2018 advance and the 200-day moving average. Monthly open resistance stands at 1283 with broader bearish invalidation at 1293.

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Gold 120min Price Chart (XAU/USD)

Gold Price Chart - XAU/USD 120minute - GLD

Notes: A closer look at price action shows Gold continuing to trade within the confines of a descending pitchfork formation extending off the March / April highs with a break below the median-line / weekly opening-rang low yesterday now testing the yearly range lows at 1266. A break below this threshold is needed to keep the short-bias viable targeting confluence support at the 100% extension of the late-February decline at 1258. Initial resistance stands back at 1272 backed by 1275/76- look for a reaction there IF reached. Ultimately a breach above the monthly open at 1283 would be needed to suggest a more significant low is in place.

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Bottom line: Gold is testing the yearly lows ahead of U.S. Non-Farm Payrolls (NFP) tomorrow. IF price is heading lower, advances should be limited by monthly open with a break lower here targeting key longer-term slope support. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops- I’m on the lookout for downside exhaustion here near-term. IF price fails ahead of 1276 on a recovery, look for a break of these lows to fuel the next leg in price. Review our latest Gold 2Q forecasts for a longer-term look at the technical picture for XAU/USD prices.

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 Positioning- XAU/USD Sentiment - GLD - GC
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +2.5 (71.5% of traders are long) – bearishreading
  • Long positions are 6.6% lower than yesterday and 9.1% lower from last week
  • Short positions are 8.2% higher than yesterday and 1.4% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests 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 (XAU/USD) 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!


Active Trade Setups

- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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