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Gold prices have surged nearly 7% off the August 1st low with the breakout ripping to fresh six-year highs at 1500. The backdrop of falling US Yields, a plummeting equity market and global central bank easing continues to fuel the gold price breakout and while our focus is higher, use caution - things could accelerate even more from here and the subsequent washout is likely to be sharp. These are the updated targets and invalidation levels that matter on the XAU/USD charts this week. Review this my latest Strategy Webinar for an in-depth breakdown of this gold trade setup and more.

New to Gold Trading? Get started with this Free How to Trade Gold -Beginners Guide

Gold Price Chart - XAU/USD Daily

Gold Price Chart - XAU/USD Daily - GLD Technical Outlook

Technical Outlook: In my latest Gold Price Weekly Outlook we warned to, “Look for a reaction / pivot off the 75% parallel / 1451 for guidance heading into the August opening-range with a breach needed to mark resumption of the broader uptrend (likely to be an accelerated move if we get it).” XAU/USD surged through this threshold in spectacular style on Monday with the advance already taking out initial resistance targets at the 50% retracement of the post-crisis record high at 1482.

The next lateral level of significance is eyed at 1522/26 – a region defined by the December 2011 and 2012 lows – look for a reaction there IF reached. Initial support now 1482 backed by 1451 with bullish invalidation now raised to 1433.

Gold Price Chart - XAU/USD 120min

Gold Price Chart - XAU/USD 120min - GLD Technical Outlook

Notes: A closer look at gold price action shows XAU/USD trading within the confines of a well-defined ascending pitchfork formation extending off the recent lows with the breakout now testing the upper parallel just below 1500. A breach above this threshold would likely see another accelerated push targeting subsequent resistance objectives at the 1.618% ext at 1509 and 1522/26.

The lateral support levels don’t line-up as well with our slope at the moment but keep an eye on these trendlines. Ultimately look to the closes for guidance with a hold above the median-line needed to keep the immediate long-bias viable.

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

Bottom line: Gold prices are in breakout mode – the advance is testing near-term up-trend resistance and we’re looking for a reaction with the focus higher while above 1451. From a trading standpoint, a good spot to raise protective stops. Caution NOT to chase this up here – keep in mind we’re just setting the monthly opening range and while the broader focus is higher, we’ll want to wait for proper entries closer to uptrend support. Review our latest Gold 3Q 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 Sentiment - XAU/USD Price Chart - GLD Technical Outlook
  • A summary of IG Client Sentiment shows traders are net-long Gold- the ratio stands at +1.56 (60.9% of traders are long) – bearishreading
  • Long positions are2.5% higher than yesterday and 15.0% lower from last week
  • Short positions are11.4% higher than yesterday and 16.4% 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 & compared with last week and the recent changes in sentiment warn that the current Spot 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!


Active Trade Setups

- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex